Rabobank, a Citigroup SIV Dumps Half Its Assets
Reuters with the latest big business exiting from the housing market:
A structured investment vehicle (SIV) managed by Dutch bank Rabobank and Citigroup has sold almost half its assets, 4.5 billion euros ($6.6 billion), as the fund could not find sufficient refinancing, Rabobank said on Wednesday.
“The market has dried up. It is all related to what is happening in the United States,” a Rabobank spokesman said, confirming a report in Dutch daily Het Financieele Dagblad about the declining size of the fund, called Tango Finance.
The fund currently holds about 5.5 billion euros in assets, down from 10 billion euros in the summer, and could reduce its holdings further to reduce investment risks, the spokesman said.
“Basically, what Tango is doing now is called unwinding,” he said, adding that the market value of Tango’s currently held assets is about 97 to 98 percent of their nominal value.
This exit will lead to pricing declines in the real estate market as well as a further decline in demand for real estate related investments. Many homeowners will seek a mortgage payoff plan as a means of surviving such a decline with equity intact.
Credit Availability Is Stretched
Those hoping to seek a home equity line of credit may find the opportunity passing as each day passes, due to the current credit crunch within the US economy. Globaleconomicanalysis reports:
Right now there is a big disconnect between the equity markets and the credit markets. This is not a stable situation. Perhaps we have a hint of what December will bring given a rare November stock market decline and a negative start to December.
But regardless of how December concludes, the current conditions are not going to be resolved by a 50 basis point cut or even a 100 basis point cut by the Fed. We are facing solvency problems, not liquidity problems.
The ability of consumers and businesses to take on credit has been stretched to the limit regardless of what the interest rate is.
A lack of credit is a terrible thing for homeowners, businessowners, and those looking to buy a home in the future. If availability fails to recover, chances are high that a recession will ensue.
This coupled with the nation’s falling dollar spells bad news for the nation’s economic future.
Amid Subprime Disaster, Accounting Rules Remain Unchanged
US Accounting code, long considered dated by the international community, has remained unchanged despite the total disaster which it helped create during the recent subprime lending craze. Reuters is reporting:
”The regulator’s tools for the most part are disclosure,” Roel Campos, former U.S. Securities and Exchange Commissioner (SEC), said at the International Federation of Accountants’ World Accountancy Forum in New York on Tuesday.
“I don’t know that it is appropriate to expect regulation, regulators, and standard setters to essentially prevent the next restructuring or subprime mortgages,” he said in response to a question from Financial Accounting Standards Board Chairman Robert Herz.
“Maybe there is a different way of thinking about the risks in the system and how to govern the financial system,” Herz told the forum. “I don’t know where the balance is, but we’re somehow not getting it right.”
Loose lending standards, rising interest rates in 2005 and 2006, and falling house prices led to an increase in the number of less-credit-worthy U.S. borrowers and contributed to a U.S. housing market slump.
While it’s gotten much harder to qualify for loans like a Utah Second Mortgage, lenders have escaped regulation (and punishment) for the reckless lending they did in recent years.
More Info About the US Mortgage Freeze Plan
Calculatedrisk has some nice insight on the new mortgage freeze plan:
And that, really, is a way to target the “freeze” to start rates that are already pretty high. I think some people are getting a bit misled by the idea of “teaser” rates here. As Bloomberg reports quite correctly, the loans being targeted have a start rate in the 7.00% to 8.00% range. (My back-of-the-envelope calculation is a weighted average of about 7.70%, with a weighted average first adjustment rate of just over 10.00%.) Nobody wants to come out and say that “Hope Now” is all about freezing just the highest initial ARM rates that there are, but that’s in fact what it’s about.
So asking, in essence, why we are “rewarding” people with the worst credit profiles is, really, missing the point. The point is that the cost of this goes directly to investors in asset-backed securities, and those investors are being asked to forgo 10% (the reset rate) and take 7.70% (the current or start rate). They are not being asked, say, to forgo 7.70% and take 5.70%, which is roughly what it would be if this “freeze” were extended to the significantly-over-660 crowd (Alt-A and prime ARMs).
That about nails it on the head. Those with bad credit are getting spoon fed, while those with good credit use their heads to plan a mortgage payoff plan. Life is certainly unfair.
Bush to Outline 5-Year Rate Freeze
Much to the delight of lenders worldwide, it appears that the US government is prepared to throw more money into lender’s pockets in order to save them from *gasp* losing money on bad loans which they made.
Reuters is reporting:
President George W. Bush is expected to outline on Thursday a plan to freeze mortgage rates for five years for many U.S. homeowners facing sharp increases in their monthly payments, industry sources said on Wednesday.
Final details of the plan are still being worked out after a trade group that represents large mortgage investors presented its framework for implementing a broad rate freeze to the Treasury Department late on Tuesday, the sources said.
“The president will make a statement on housing issues tomorrow afternoon,” a senior administration official said, declining to elaborate on details.
Yet again, those that have wisely budgeted for their mortgage or home equity line of credit are getting the short end of the stick, while those with high rates loans are getting bailed out.
Senator Dodd Starts Up Trouble
The Senate is continuing to seek answers for the *surprise* housing crisis.
Bloomberg reports:
U.S. Senate Banking Committee Chairman Christopher Dodd called on Treasury Secretary Henry Paulson to answer questions about Goldman Sachs Group Inc.’s role in the collapse of the subprime mortgage market.
Dodd, a Democratic presidential candidate, said in a statement today that he was “deeply concerned” by questions about New York-based Goldman Sachs that were raised in a column by Ben Stein in the New York Times on Dec. 2.
The column asserted that Goldman, the world’s biggest securities firm, sold bonds backed by subprime mortgages and also profited from bets that the value of the securities would drop. Paulson was chairman and chief executive officer of Goldman from 1999 until he became Treasury Secretary last year.
Perhaps the people of the United States would best be served by the enforcement of laws preventing illegal lending, rather than an endless blame game.
Many Americans are struggling to get out of debt, and sadly, the government seems to be doing little to help them do so.
Scwab dumps SIVs
Schwab, a money manager has been making some interesting moves in the financial market.
These changes have are affecting the money market’s funds exposure to SIV debt.
Marketwatch has the latest:
By year’s end, Hintz said, Schwab’s exposure to SIVs should drop to around 3.5% of assets. That’s based on typical maturity structures of the firm’s underlying money market assets, he added.
Looking out to the end of February, Hintz wrote in the report that he expects such commercial paper to represent slightly more than 2% of the funds’ total assets. Hintz also says that in the second half of 2008 almost all of Schwab’s SIV exposure should be eliminated.
Bernstein maintained its outperform rating on the stock and $27.50 target price.
“Like other large mutual fund complexes, Schwab is unlikely to ever allow its funds to drop below a dollar and would, if necessary, step in to buy the SIV commercial paper at par,” Hintz said.
A recent article in The Wall Street Journal highlighted the exposures of several money market funds to SIV debt. One of those was Schwab’s Advisor Cash Reserves Fund.
These changes will doubtlessly affect the rates on loans such as 2nd mortgage loans, which will make it harder for Americans to afford their homes.