UK : Egg/Citigroup Clamps Down On Riskier Credit Card Customers

Probably no coincidence that Citigroup is forced to make the move first and one of the largest US pawnbroker & payday lender is entering the market at the same time..... Once again their risk modeling wasn´t quite perferct...... How can you buy a UK credit card company close to a top in the UK housing market...... But i think it is very safe to say that others will have to follow ( not only in the UK ) Citi in this kind of tightening.....I suggest to read this Total UK personal debt statistic February 2008 from Credit Action to understand the magnitude of the mess especially in UK .

Sicher kein Zufall das ausgerechnet Citigroup den ersten Schritt machen muß und gleichzeitig das größte US Pfandleihaus & einer der größen "Kredithaie" in den UK Markt eintritt..... Es sieht so aus als wenn die mal wieder genau zum Top eine riskante Investition getätigt hätten.... In diesem Fall bin ich mir sicher das Citi mit diesem Schritt nicht lange alleine bleiben wird. Andere Anbieter ( auch länderübergreifend ) werden sich dieser Art der Kreditverknappung anschließen müssen.... Um einen Überblick über das Ausmaß gerade in UK zu bekommen empfehle ich einen Blick auf diese Übersicht Total UK personal debt statistic February 2008 von Credit Action zu werfen.

This quote sume it up / Dieses Zitat spricht Bände

"We can certainly understand the concerns, but even if people are up-to-date with repayments, they are people we decided we no longer wish to lend money to regardless of their status." Egg spokesman

Egg customer anger at credit move BBC
Angry customers of internet bank Egg have hit out at its decision to cancel their credit cards.

Egg says 161,000 cards belonging to people whose credit profiles have deteriorated since they signed up will stop working in 35 days' time.

But people who insist they have good records have been contacting the BBC to say they are on the list.

A spokesman for the bank said those affected were customers it no longer wanted to lend to "regardless of their current status".

Credit cards are being withdrawn from 7% of Egg's customers who it deems to pose an unacceptably "high risk".

This could include those who have missed repayments or exceeded their credit limit.

'Arbitrary action'
Cardholders will be able to continue making minimum monthly repayments on their balances but will not be able to spend any more after the deadline.

The move follows a "one-off" review after Egg was bought by US-based Citigroup for £575m last year.

The bank is not demanding immediate repayment of balances or making any changes to customers' terms and conditions or their interest rates. ....

Gillian Cox, of Farnham, Surrey, said she was "absolutely furious" to learn her credit card had been cancelled in what she described as an "unbelievable arbitrary action".

Mrs Cox said she and her husband are "retired, no mortgage, no debts" and "always paid the balance off in full each month".

She added that she had contacted credit reference agency Experian who said she was marked as having an excellent credit rating, "thus totally negating Egg's claim that this measure is about credit risk".

'Stop spending'
A spokesman for Egg said: "We are sorry some customers are upset after receiving notification we are ending their credit card arrangement, but they are people we do not feel it is appropriate to lend any money to."

He added: "The decision was taken after an extensive one-off review of our credit card book following acquisition by Citigroup."

Der Spiegel London - Die Internetbank Egg greift durch. Die britische Citigroup -Tochter will rund sieben Prozent ihrer zwei Millionen Kunden die Kreditkarte sperren. Offenbar haben es Egg und Mutterkonzern Citi mit der Angst zu tun bekommen - sie fürchten, die Risikokunden könnten sich übernehmen und ihre Darlehen nicht zurückzahlen können. Offiziell heißt es: Das Kreditrisiko der "riskanten" Kunden sei zu hoch.

Egg teilte zwar mit, der Schritt habe nichts mit der weltweiten Kreditkrise zu tun. Es handele sich bloß um eine "Neubewertung der Risiken", nachdem Egg im vergangenen Jahr von der Citigroup gekauft worden war. Die Maßnahme zeigt aber, dass Banken weltweit konservativer bei der Darlehensvergabe werden und hart gegen Risikokunden durchgreifen.

Die Egg-Mutter Citi hatte sich bei riskanten Kreditgeschäften so sehr verhoben, dass an den Finanzmärkten sogar zeitweise Insolvenzgerüchte zirkulierten. Citi hat im Zuge der Kreditkrise mehr als 18 Milliarden Dollar abschreiben müssen und damit einen Verlust im vierten Quartal von rund zehn Milliarden Dollar verbucht. Mit der Wahrheit über das Ausmaß der Krise rückte Citi nur scheibchenweise heraus. Egg will die Karten innerhalb von 35 Tagen sperren, die Kunden wurden bereits angeschrieben.

The Rise of Pawn Shops and Fringe Banking

This is probably one of the very few sectors in the US financial system with a very bright future.....Hat tip to Minyanville for digging this from the FT

Das Geschäft der Pfandleihhäuser dürfte eines der wenigen Sektoren im US Finanzsystem mit glänzenden Zukunftsperspektiven sein.... Dank geht an Minyanville für das ausgraben dieser Geschichte der FT.

US pawnbrokers benefit from hard times FT
Hard times in the US are benefiting pawnbrokers as beleaguered consumers pledge jewels, electronics and other goods in return for loans with interest rates running as high as 300 per cent a year.

Dave Adelman, president of the National Pawnbrokers Association, said the number of loans at US pawn shops had risen 15-20 per cent since October. He attributed the increase to rising fuel prices and deteriorating economic conditions – an assessment echoed by other industry executives.

“Brief and shallow downturns in the economy may benefit our business model,” said Daniel Feehan, chief executive of Cash America, the biggest US pawnbroker chain, with 942 locations. ( Cash America Presentation )

> Probably no coincident that they have entered the UK market in mid 2007....

> Sicher kein Zufall das die Mitte 2007 in den UK Markt eingetreten sind......

Pawnbrokers offer loans in return for personal items. Customers can buy back their property for the value of the loan plus a fee, which works out to an interest rate that can reach 300 per cent on an annualised basis, according to the NPA. If borrowers do not pay off the loan in a given time, the unredeemed item can be sold.

> Here comes the definition from "Cash Advance " & "Pawn" via Cash America

> Hier die Definition der Begriffe vie Cash America

Cash America said on Thursday its profits had risen 21 per cent to $26.3m in the fourth quarter, reflecting higher sales of pawned goods and more loans.

Alan Fishbein of the Consumer Federation of America said pawnbrokers and other “fringe” banking operations – such as those making loans against future pay cheques or car titles – had grown as banks had withdrawn from poorer areas. About $48bn in payday loans are made every year and the revenues in the whole fringe banking industry are an estimated $12bn-$15bn, according to Dennis Telzrow, a consumer finance analyst at Stephens, an investment bank.

An estimated 10m US households are thought to be outside the banking system, according to the Federal Deposit Insurance Corporation. The NPA estimates there are 12,000 to 14,000 pawnbroker shops in the US.

On Manhattan’s 47th Street, the New York block through which about 90 per cent of US diamonds are sourced, some merchants report a sharp uptick in the amount of jewellery being brought in for sale.

“Its real sad – they don’t want to sell,” said Ruben, a 52-year-old street hawker who buys jewellery from passers-by in the diamond district.

“They might have paid $150,000 for a necklace but they will get back $25,000 or $30,000 at most. But it’s either that or lose their house.”

Credit Excess / Baltics

Wow! We have a clear winner in the category "easy credit". beforeThe the following charts and data are just breathtaking. .....The credit explosion explains why the Baltic Real Estate market is so "frothy".

Anschnallen! Wir haben den eindeutigen Gewinner in Sachen "Easy Credit" gefunden. . Die nachfolgenden Charts und Daten verschlagen einen aber wirklich den Atem....... Das erklärt natürlich auch diesen Bericht über den baltischen Immobilienmarkt.


Banking Risks Rise in Eastern Europe
Credit to the private sector has expanded at a fast clip in central and eastern Europe during the past decade, outpacing most other regions of the world.

Rapid credit growth (see Chart 1) reflects a number of factors:

• low levels of financial development and pent-up demand pressures following decades of socialist economic management;

• good macroeconomic discipline and membership in the European Union (EU), which lowered country risk premiums; and

• improved access to foreign capital following the entry of foreign banks and the opening of capital accounts.

Assessing the risks
Rapid credit growth has brought important benefits, helping channel domestic and foreign savings to households and investors and supporting financial sector development and economic growth in the region. But the brisk expansion of credit is raising concerns about macroeconomic and prudential risks (that is to say, whether banks remain sound).

Quantifying these risks is a challenge because countries in central and eastern Europe have not gone through a full credit cycle yet, and financial soundness indicators tend to improve in the upward phase of the credit cycle.

But experience in industrial and emerging market countries suggests that credit booms can be associated with unsustainable domestic demand booms, overheating, and asset price bubbles. Financial sector difficulties also cannot be ruled out—for example, loan losses may occur during a deep recession or following a large exchange rate depreciation if loans are denominated in foreign currency.

> from Baltic blues / Economist

How significant these risks are in central and eastern Europe and what role public policy should play in containing them are key questions facing policymakers.

Banking risks on the rise
On the surface, rapid credit growth in central and eastern Europe does not appear to have weakened banks. (It remains to be seen how the current turmoil in financial markets will affect banks in the region, but so far there have been no signs of a major fallout.) However, the reason financial soundness indicators are not yet pointing to a deterioration in credit quality could be that they are based on systemwide statistics rather than reflecting assessments of data from individual banks and there is a lag before bank data become publicly available.

Our analysis suggests that the granting of credit is becoming increasingly divorced from bank soundness—all banks, including weak ones, seem to be expanding at an equally rapid pace. This suggests that prudential risks are on the rise.

Our findings underscore the importance of forward-looking and risk-based supervision to keep the risks associated with rapid credit growth at manageable levels while maximizing the benefits of credit for financial development and economic growth.

In particular, supervisors need to give more attention to weaker banks that are growing rapidly. This would also be consistent with the risk-based approach to supervision that central and eastern European countries are moving to as they implement the new capital adequacy accord, known as Basel II.

Increased prudential risks are most apparent in the fastest-growing credit markets. These markets include lending to households, foreign currency-denominated or indexed lending, and lending in the three Baltic countries, where weaker banks are expanding at a faster rate than sounder banks (see Chart 2). A stronger policy response is thus warranted in each of these markets. Such a response may involve, for example, higher capital requirements and tighter loan classification and provisioning rules, differentiated on a bank-by-bank basis

But experience in industrial and emerging market countries suggests that credit booms can be associated with unsustainable domestic demand booms, overheating, and asset price bubbles. Financial sector difficulties also cannot be ruled out—for example, loan losses may occur during a deep recession or following a large exchange rate depreciation if loans are denominated in foreign currency.

How significant these risks are in central and eastern Europe and what role public policy should play in containing them are key questions facing policymakers.

Banking risks on the rise
Our analysis suggests that the granting of credit is becoming increasingly divorced from bank soundness—all banks, including weak ones, seem to be expanding at an equally rapid pace. This suggests that prudential risks are on the rise.

Increased prudential risks are most apparent in the fastest-growing credit markets. These markets include lending to households, foreign currency-denominated or indexed lending, and lending in the three Baltic countries, where weaker banks are expanding at a faster rate than sounder banks (see Chart 2). A stronger policy response is thus warranted in each of these markets. Such a response may involve, for example, higher capital requirements and tighter loan classification and provisioning rules, differentiated on a bank-by-bank basis

Unmasking Greenspan Vol. XXIII....

SCHADENFREUDE! I can´t wait to see his new book (already at a 34% discount) to become a major flop. This guy is the most overrated person in the financial history. But this will change very soon. The timing couldn't have been much worse. For more "Greenspan Watch" i recommend Tim´s blog The Mess That Greenspan Made .

Tut mir leid, aber ich kann meine Schadenfreude nicht wirklich unterdrücken. Ich kann es nicht erwarten zu sehen wie das neues Buch ( bereits jetzt mit einem Abschlag von 34% zu erhalten) von "Easy Al" in den Regalen verstaubt oder aber zumindest in alle Einzelteile zerlegt wird. Das Timing hätte schlechter nicht sein können. Der wohl am meisten überschätze Notenbänker aller Zeiten (wird sich sicher in Rekordgeschwindigkeit ändern). Mehr über die Entzauberung von Greenspan findet Ihr regelmäßig auf The Mess That Greenspan Made

Taken from Bush, Bernanke and a bad bailout / Fleckenstein
Of course, as the mortgage-for-anyone-with-a-pulse party was in full bloom, Greenspan was busy cheerleading. In a speech April 8, 2005, Greenspan extolled the virtues of sublending:

"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect in the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial-services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

Naturally, it was not until after the debacle unfolded that Greenspan warned banks about imprudent lending standards.

> Another example of how the times have changed is the fact that the book from Hyman Minsky is only available within within 4 to 6 weeks. If you want to buy it now you have to buy a used one and pay at least $167,85 / 34% premium....... ;-)

> Ein praktisches Beispiel das zeigt wie sehr sich die Zeiten geändert haben ist die Tatsache das für das Buch von Hyman Minsky zur Zeit Lieferfristen von 4-6 Wochen in Kauf genommen werden müssen. Wenn man es sofort kaufen möchte muß man auf ein gebrauchtes Exemplar zurückgreifen und mindestens $167,85 / 34% Aufschlag zahlen..... ;-)

> The NYT is reporting in "Greenspan Blogs? Not for Long!" that Greenspan has shut down his blog to promote his new book after only one post....

> Passend dazu berichtet die NYT in "Greenspan Blogs? Not for Long! " das Greenspan seinen Blog zur Promotion seines Buches nach nur einem Post eingestampft hat ......

Credit Crunch Not Going Away / Minyanville

Mr. Practical from Minyanville has it right. The party is over...

I aslo recommend the Five Things You Need to Know: Oh, THAT Excess Liquidity; Oh, THAT Liquidity Crisis; Oh, THAT Credit Crunch; Oh, THAT Excessive Risk-Taking; Oh, THAT Consumer Slowdown that gives a good summary what happened on the day that had almost historic proportions....

Denke das Mr. Practical von Minyanville es hier treffend beschreibt. Die Party ist vorbei....

Zudem ist der folgende Link Five Things You Need to Know: Oh, THAT Excess Liquidity; Oh, THAT Liquidity Crisis; Oh, THAT Credit Crunch; Oh, THAT Excessive Risk-Taking; Oh, THAT Consumer Slowdown lesenswert. Hier wird noch einmal der gestrige (historische) Tag zusammengefasst.

Last night the European Central Bank issued a statement promising plenty of liquidity to banks. The Fed arranged a very large $24 bln in repos this morning, trying to get fresh credit in the hands of banks to deal with their current commitments. Even the Bank of Canada issued the same statement.

> In the meantime Bank of Japan & RBA have joined the party. No surprise that the ECB provides further EUR61B to boost liquidity is acting with a follow up . Looks like $130 billion wasn´t enough to calm down the market..... That was already roughly 50 percent more than after 9/11! All Central Banks have now provided close to $ 250 billion liquidity....

> In der Zwischenzeit müssen immer mehr Notenbanken zur Hilfe eilen. Keine Überraschung das die EZB 61 Mrd € nachlegen muß (95 Mrd € waren wohl nicht genug.....das waren immerhin fast 50% mehr als nach dem 11. September) . Addiert man alle Zentralbankinjektionen zusammen kommt man auf ca. 175 Mrd. €......

But all this misses the problem. The theory is flawed. Central banks promising new credit to strapped banks only helps them with their current problems. It will not get new credit into a system that can't take anymore. Banks, given their situation, are reducing drastically their new commitments, as they should. Borrowers can't afford to borrow more.

Sooner or later the market will realize that this is a credit crunch. We have not seen a real credit crunch since 1973. Go back to your history books to witness what a credit crunch does to asset prices. Pure and simple, when the borrowing dries up, there is no "money" to buy assets.

This is a process that is likely to take years to correct. It will not be a pretty process as debt gets destroyed (foreclosures) until enough of these excesses get wiped away to start anew. It was all caused by too-easy credit for too long by a Central bank not willing to let the market itself handle the allocation of capital. It insisted on providing credit cheaply when the market didn't deserve it.

So U.S. consumers have lived beyond their means for too long. They have wasted away their savings and are now in too much debt. Pure and simple

Baltic Real Estate / Bubble World Tour

Speaking of a rolling bubble....... I have visited Tallinn in 2004 and it is a beautiful city with lots of history. Back then the city was a big building site with renovations etc going on almost at every corner and i was already stunned from the 2004 prices. In hindsight these offers looks like bargains.....

Ich habe Tallinn im Jahr 2004 besucht. Eine traumhafte Stadt mit jeder menge Historie. Seinerzeit war es bereits eine einzige Baustelle (überwiegend Renovierungen). Beim Blick ins Maklerbüro konnte ich schon 2004 die Preise kaum glauben. Rückblickend waren das allesamt echte Schnäppchen.


this is from Bloomberg http://tinyurl.com/242umm

Standard & Poor's Ratings Service on May 23 changed Lithuania's credit outlook to negative from stable, warning of a ``hard landing.'' To avoid a rating cut, Lithuania needs to rein in spending to help curb domestic demand and banks should tighten lending policies to reduce credit growth, the rating company said.

The country's application to adopt the euro at the beginning of this year was rejected because the inflation rate exceeded EU criteria. The government has refused to set a fixed target date, saying the best time for euro adoption will begin in 2010 when inflation is expected to slow

Property in the Baltics, till recently Europe’s hottest residential investment destination, is now expensive. Apartments in the capital cities of Baltic countries are priced at around the same level as Copenhagen, Helsinki and Stockholm...

Why have Baltics’ property prices surged so strongly? Research suggests that long term property price rises are strongly correlated with high GDP growth rates (though there are many other additional factors).

>Like "exotic financing" in the us.....or as in the case of the baltics financing in a foreign currency (mainly €)......According to the SEB (Swedish bank) almost 70 Percent!!!!!! in Latvia are using € mortgages......

>Wie zum beispiel die halsbrecherischen finanzierungsformen in den usa..... In den baltischen staaten wird zu einem hohen anteil die immobilien in fremden währungen (hautpsächlich €) finanziert.....Nach Zahlen der schwedischen Bank SEB lauten in Lettland schon 70 Prozent der Kredite auf Euro

The list of European countries which in the past five years have experienced high per capita GDP growth is, unsurprisingly, headed by Latvia, Estonia and Lithuania – which all experienced above 8% GDP per capita growth (as did Belarus, where however foreigners cannot buy).

While the Baltics’ continued strong GDP growth suggests continued good news for residential investors (Latvia returned 10.7% GDP growth in the first quarter of 2007), one trend is worrying for investors – income returns on property investment in the Baltics are falling.

Estonia.
In Tallinn, city centre prices increased, in the two years to end-2006, from around €1,358 per sq. m. in December 2004 (average of all apartment sizes), to around €2,432 at end-2006, according to Global Property Guide estimates – an increase of around 79%.

However, monthly rents did not move much upwards. They increased from an average of €9.8 per sq. m., to around €11.6 per sq. m.(according to Global Property Guide estimates) – an increase of only 18%.

Tallinn’s average rental yields have therefore fallen significantly, from around 8.47% to an average of 5.77%.

The figures in Latvia (5,04%) and Lithuania (4,39%) are even worse........

All yields figures are gross, i.e., before any costs, taxes, etc. These falling yields suggest trouble ahead

Western Europe
What about the West European countries in our table? Some also yield good rental incomes for residential investors, including France or the Netherlands (though at best they yield 2% - 4% less than the very highest yields Eastern European countries).

The problem is that they have quite substantial disadvantages as investment destinations: Western European property is expensive, in sq. m. terms.

The high yielding Western European countries have significantly lower real GDP growth (see GDP/cap Growth 5 Years) than their Eastern counterparts. Not just lower growth – dramatically lower growth.

Liquidity Slowing? / Paul Kasriel

i think we can eliminate the questionsmark.......

Meiner Meinung nach kann man das Fragezeichen bereits jetzt weglassen.....
It sure is with regard to how much U.S commercial banks are providing of late. Adjusted by the CPI, the year-over-year change in U.S. total bank credit (loans and investments) hit a recent peak of about 9% in October 2006. As of May, that year-over-change had slowed to about 4.8% (see Chart). As mortgage defaults continue to rise and regulators issue new more restrictive mortgage lending "guidelines," bank credit growth is likely to slow still more.

And goodness knows what will happen if a few of the private equity loan deals sour.

>AMEN!

Banks significantly tightened real-estate loan standards

to bad when you can´t sell the crap to the secondary market........... this will be another catalyst for lower prices and a further slowdown in the us economy that is highly addicted/dependent on the access to credit.......and there is nothing fed can do......

zu blöd wenn man seine kredite nicht mehr im zweitmarkt platzieren kann.......ein katalysator mehr für einen weitern rapiden verfall der immomärkte und damit einhergehend eine weitere schwächung der us wirtscahft die wie kaum eine andere abhängig vom schmiermittel der kredite /verscchuldung ist.......hier ist im übrigen schön zu sehen wie machtlos die fed machtlos ist

and when you look at this chart with all the coming arm resets.........the timing of the tightening comes just in time........

das gilt besonders wenn man sich diesen chart der kommenden neuberechnung der "kreativen kreditprodukten" ansieht........da kommt die verknappung zur unzeit.....

größer/bigger http://tinyurl.com/yudhdz

and here is the quote of the day from justin lenhard via itulip http://tinyurl.com/ywkn4c

Justin Lahart, who's been ripping the cover off the ball one column after another for months, has the best answer to our question posed yesterday about why the markets are not discounting the way they used to. Much as consumer confidence is no longer a measure of consumers' future employment and wage expectations but is instead a measure of consumers' expectations of future access to credit, the stock market is now an indicator of the market's expectations of future access to credit to finance new deals.

56% of banks tightening standards for subprime mortgages

15% of banks tightening standards for prime mortgages: Fed

46% of banks tightening standards for exotic mortgages: Fed

At least 38% of banks tightening mortgage lending standards

Standards for commercial and industrial loans were little changed in the first quarter, the Fed report shows. Loan terms were easier at 7.5% of banks surveyed and tighter at 4%. About a fifth of the banks said demand for commercial and industrial loans was weaker.

>watch for the commercial standarts to tighten also in the near future... (and i hope that we see the same in the lbo/clo credit market.

>bin mir sicher das wir eine ähnliche entwicklung auch bald im gewerblichen immosektor und vor allem auch im kreditmarkt für die ganzen lbo´s und clo´s sehen werden.

more from

macroblog http://tinyurl.com/22bgwt
calculated risk http://tinyurl.com/3y29a3

UPDATE:

The number of German banks that eased lending standarts is 40%!!!! in q1 2007 for individuals and 20% for corporates.

Die deutschen Banken und Sparkassen haben im ersten Quartal 2007 ihre Kreditvergabestandards auf breiter Front gelockert und sich mit schmaleren Margen zufrieden gegeben. Das zeigt die vierteljährliche repräsentative Bankenumfrage der Deutschen Bundesbank.

Vor allem bei Krediten an Haushalte legten die Banken deutlich weniger strenge Maßstäbe an: fast 40 Prozent der Banken lockerten die Standards für normal riskante Kredite. Bei den Unternehmenskrediten, wo die Lockerungstendenz schon länger anhält, wurde jede fünfte Bank noch großzügiger

(source : Handelblatt / Banksurvey Deutsche Bundesbank) http://tinyurl.com/2srz4d

Grim Reality / PIMCO

bill gross is right that the credit tightening will lead to real trouble for the us.

i´m not so sure about the other conclusion he is drawing (only 20%?). it´s also unusual that he uses the shiller and nar data and in the official pimco housing outlook they use the ofheo data http://tinyurl.com/29n2gg

bill gross beschreibt genau richtig das die eingentliche probleme die verknappung von krediten ist.

was die weiteren schlüsse und berechnungen (20%?)sind die er zieht bin ich mir da nicht ganz sicher. zudem ist es ungewöhnlich das er die shiller und nar daten benutzt während pimco im offiziellen housing outlook auf die ofheo daten zurückgreift http://tinyurl.com/29n2gg

Life, it seems, has become one giant reality show – or is it vice versa? Which is truth and which is the illusion or have both simply morphed into a uni-consciousness that feeds off information from different computers – one the living kind with two arms and two legs, the other more stationary with a plasma and keyboard. My Apple screensaver for instance features a stunning series of pictures of our galaxy and beyond, from detailed midnight close-ups of the moon’s craters to spinning supernovas of unimaginable beauty. While everyone “knows” that those objects are really “out there,” it’s possible to admit that they’re also in “there.” ......” It’s only my past experience that commonsensically points to the “out there” as real and the “in there” as an illustration. If I’d been raised and confined in a room with nothing but a computer, the tilt of perception would most likely be in the other direction. .......

Such complexity is also evident in the financing of the U.S. housing market. Long ago and far away there used to be an old “20% down” reality that morphed somehow into a subprime/Alt A cyberspace free-for-all (literally “free for all”).

thanks to http://www.glasbergen.com/

Talk about a second life! U.S. homeownership has expanded from 65% to 69% of households since the turn of the century, in part because it became so easy, and so cheap to finance a home. No avatars in that bunch – they were living, breathing U.S. citizens who yes, might knowingly or unknowingly have taken advantage of “low doc” or “no doc” applications, who might have taken out a “liar loan” in the face of “full disclosure” documentation required of their mortgage lenders, or who simply might just have jumped on board the 1% Fed Funds financing train of 2003. No matter. They bought a house, began living the American dream by making money with someone else’s money, and expected to live happily ever after.

Well, not so fast, at least for some of them, it seems. Home prices, as measured by the National Association of Realtors, have gone down by 2% nationally over the past 15 months and there’s fear in the air that it could get worse. It most assuredly will.

The problem with housing, however, is not the frequently heralded increase in subprime delinquencies or defaults. Of course write-offs, CDO price drops, and even corporate bankruptcies of subprime originators and servicers will not help an already faltering U.S. economy. But foreclosure losses as a percentage of existing loans will be small and the majority of homeowners have substantial amounts of equity in their homes. Because this is the reality of our U.S. housing market, analysts and pundits now claim we’re out of the woods: the subprime crisis is or has been isolated and identified for what it is – a small part of the U.S. economy.

It will not be loan losses that threaten future economic growth, however, but the tightening of credit conditions that are in part a result of those losses. To a certain extent this reluctance to extend credit is a typical response to end-of-cycle exuberance run amok. And if one had to measure this cycle’s exuberance on a scale of 1-10, double-digits would be the overwhelming vote. Anyone could get a loan because shabby credits were ultimately being camouflaged within CDOs that in turn were being sold to unsophisticated foreign lenders in need of yield as opposed to ¼% bank deposits (read Japan/Yen carry trade). But there is something else in play now that resembles in part the Carter Administration’s Depository Institutions and Monetary Control Act of 1980. Lender fears of potential new regulations can do nothing but begin to restrict additional lending at the margin, as will headlines heralding alleged predatory lending practices in recent years. After doubling over 18 months between 2005 and the first half of 2006, non-traditional loan growth has recently turned negative, and lenders’ attitudes are turning decidedly conservative as shown in Chart 1.
Bulls and bears argue over websites as to the percentage of all lending that subprime and alternative mortgage loans provide but while important, the argument obscures the critical conclusion that tighter lending standards and increased regulation will change the housing outlook for some years to come. As past marginal buyers are forced to sell their home to prevent foreclosures, so too will future marginal buyers be restricted from buying them. No one really knows the amount that homes must fall in order to balance supply and demand nor the time it will take to do so, but if one had to hazard a conclusion, it would have to be based in substantial part on affordability statistics that in turn depend on financing yields and home price levels in a series of different scenarios as outlined in Chart 2. The chart shows the amount that home prices or mortgage rates (or a combination of the two) need to decline in order to revert back to affordability levels in 2003, a year which might have been the last to be described as a “normal” year for home price appreciation.

>look at the shiller chart and decide if 2003 was a normal year....and what with the years prior to that?

>guckt euch den chart an und sagt mir ob 2003 ein normales jahr war. und vor allem was mit den jahren vorher passiert ist. Since then, 10+ annual gains have been the rule whereas average historical estimates provided by Robert Shiller may have suggested something on the order of 4-5%.


größer/bigger http://tinyurl.com/2d2zxy

By that measure alone, homes are likely 15-20% overvalued (3 years x 5%+ annual overpricing). Chart 2, in addition suggests much the same thing. If mortgage rates don’t come down, home prices need to decline by 20% in order to reach prior affordability levels. If rates do come down, home prices will drop less. größer/bigger http://tinyurl.com/2yq7t3

>to me it looks like he has left out the years prior to 2003. i wanted to add that lots of cities have gone almost parabolic. so even when the 20% for the nationswide level is true very important areas will get hammered. more shiller charts for other big cities via paper money http://tinyurl.com/2ygvb7

>für mich sieht es so aus als wenn er die jahre vor 2003 ausblendet. zudem möchste ich ergänzen das etliche große und wichtige stäfdte/regionen fast parabolisch gen norden geschossen sind so das selbst wenn die 20% auf landesebene korrekt sind diese regionen deutlich crashpotential haben. um mehr regionen im einzelnen zu sehen bitte auf den link von paper money klicken http://tinyurl.com/2ygvb7

>here are the future contracts thanks to macroblog! http://tinyurl.com/247fqe .

looks like the pace is accelerating......

>hier sind die futures / dank an marcoblog! http://tinyurl.com/247fqe

sieht so aus als wenn sich das templo der abwärtsbewegung beschleunigt......

größer/bigger http://tinyurl.com/2fbqfv

Chart 2, while somewhat subjective and time dependent, introduces the critical connection between home prices and interest rates. PIMCO cares about housing and its fortunes, but primarily because of its influence on yields. And while the Fed may be willing to allow U.S. homeowners to suffer a little pain as indeed they have in recent quarters, a double-digit decline would risk consequences that few central banks would be willing to underwrite.


>too bad they have taken the risk of inflating this bubble year after year ......

>zu dumm nur das die fed das risiko der blasenbildung nur zu gerne in kauf genommen hat ....

So a forecast of home prices almost implicitly carries with it a forecast for interest rates. To prevent a double-digit decline in prices, PIMCO’s statistical chart suggests that mortgage rates must decline a minimum of 60 basis points and the sooner the better. The longer yields stay at current levels, the more downward pricing pressure will build as foreclosures/desperate sellers dominate price trends as opposed to prospective buyers. While the Fed, as pointed out in last month’s Investment Outlook must be cognizant of an array of asset prices in addition to housing, homes are the key to future equitization trends, and fundamental therefore to the outlook for consumption.

You may want to take this looming grim reality with a grain of salt or suggest as old worlders do that it’s not real at all if it can’t be touched or if it doesn’t touch you. Not so. Don’t take my word for it though. Investigate the Fed’s own study, written in September of 2005 (Monetary Policy and House Prices: A Cross-Country Study) covering housing cycles in aggregate and individually for 18 countries over the past 35 years. This study’s important conclusion for PIMCO and our clients is that if home prices in the U.S. have peaked, and are expected to stay below that peak on a real price basis for the next three years, then the Fed will cut rates and cut them significantly over the next few years in order to revigorate an anemic U.S. economy. Strong global growth (not part of this study’s assumptions) may temper historical parallels and provide a higher floor than would otherwise be the case.

Nonetheless, prices for houses that I can see and touch every day outside my office are morphing with bond yields inside my computer screen to produce a reality show that speaks to an ongoing bond bull market of still undefined proportions.

>for a foreign investor with currency risk there will be probably no bull market in us bonds....

>für einen ausländischen investor dürfte selbst ein starker bondmarkt dank des $ wahrscheinlich zu wenig jubelstürmen führen

Subprime Loan Meltdown Engulfs Even Borrowers With Good Credit

comeback of the down payment. what a revolutionary concept.....

die rückkehr ner anzahlung......was sind für deutschen doch manchmal genial......

March 22 (Bloomberg) -- The subprime credit crunch is beginning to ensnare even borrowers with good credit.

Lenders are increasingly refusing to lend to homebuyers who can't make a down payment of more than 5 percent, especially if they won't document their income. Until recently such borrowers qualified for so-called Alt A mortgages, which rank between prime and subprime in terms of risk. Last year the category accounted for about 20 percent of the $3 trillion of U.S. mortgages, about the same as subprime loans, according to Credit Suisse Group.

``It's going to be very difficult, if not impossible, to do a no-money-down loan at any credit score,'' .... Companies that buy the loans ``are all saying if they haven't eliminated them yet, they'll eliminate them shortly.''

Tighter lending standards may slash subprime mortgage sales in half this year and Alt A mortgages by a quarter, according to Ivy Zelman, a Credit Suisse analyst in New York who covers homebuilders. The new requirements will force some prospective homebuyers to save more money for a down payment or risk being denied credit.

Pulling Back
Bear Stearns Cos., General Electric Co.'s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they're pulling back from buying Alt A mortgages sold with no down payment or in a refinancing of the house's entire value. Such companies facilitate the mortgage market by buying loans and repackaging them for sale as bonds to buyers such as insurers and hedge funds.

Mortgages are categorized as Alt A when they fall just short of the typical standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. Besides some loans requiring no down payment or proof of income, they are often made to buy a second home, a rental unit or to speculate on real estate. Also often falling into the category are loans that are ``option'' adjustable-rate mortgages, whose minimum payments can fail to cover the interest owed.

Defaults Rising
Consumers borrowed 100 percent of their home's value on about 18 percent of Alt A loans made last year, according to Bear Stearns, the largest mortgage-bond underwriter. Another 16 percent had loan-to-value ratios above 90 percent as well as limited documentation, they say. ( that makes them today loans with close to 100%...../ das dürfte die meisten dieser kredite zu 100% darlehen machen...)

The category comprised about 5 percent of new loans in 2002, according to Credit Suisse. Late payments of at least 60 days and defaults on Alt A mortgages have risen about as fast as on subprime ones, to about 2.4 percent, according to bond analysts at UBS AG. Loans in the category made to borrowers with low credit scores, equity and documentation are doing about as badly as subprime loans, according to Citigroup Inc. and Bear Stearns analysts.

Rapid credit tightening that's ``been isolated to the subprime world has really migrated'' in the past two weeks to Alt A offerings that involve borrowing nearly all of a home's worth, ..... ``We're just hopeful it will settle down soon.'' ....

Limits Welcomed
Some lenders say it's high time that buyers are discouraged from buying real estate with no money down.

``Could we have a little skin in the game from the borrower, please,'' said Rick Soukoulis, chief executive officer at LoanCity, a San Jose, California-based lender that stopped making mortgages last week to customers who want to borrow more than 95 percent of the value of their house due to the shrinking secondary market. ``Something to lose if you go into default?''

(they better shoul have been carefull in the years 2004-2006..../ das hätte er mal besser in den vergangenen jahren machen sollen ....)

LoanCity, which made about $6 billion in mortgages last year, went out of business on March 20. http://mortgageimplode.com/

The slump in subprime loans has ``drastically eroded'' appetite for bonds backed by Alt A loans, according to a March 9 report by Credit Suisse. The extra yield that investors typically demand on the parts of the securitizations with the lowest investment-grade ratings have risen to 3.50 percentage points over the one-month London interbank offered rate from 2.15 percentage points in September, according to Bear Stearns.

Resale Woes
``If you couldn't sell something, you wouldn't do it either,'' UBS analyst David Liu in New York said. Part of the problem is falling demand for ``piggyback'' home-equity loans used to make down payments, he said.

New York-based Citigroup will no longer buy home-equity loans made to borrowers who won't prove their incomes and want more than 95 percent of their home's value, according to e-mails from salespeople. Mark Rogers, a spokesman, declined to comment.

New York-based Bear Stearns, the third-largest Alt A lender according to newsletter National Mortgage News, last week stopped buying such loans without down payments of at least 5 percent. For borrowers not fully documenting incomes or assets, the maximum loan-to-value ratio will be 90 percent.

Bear Stearns' EMC Mortgage unit told loan sellers of the changes on March 13, giving them a day's notice. On Feb. 26, EMC said it would start requiring down payments of only 5 percent in the low-documentation category, giving sellers until March 12 to submit loans under the old standards. On March 1, the deadline moved to March 6. EMC didn't change ``full documentation'' programs then.

...People who qualify for prime mortgages don't experience any trouble getting a loan.

Lower Standards
Bear Stearns will finance 25 percent to 30 percent fewer non-prime mortgages this year as it tightens credit, Chief Financial Officer Sam Molinaro said on the company's earnings call last week.

``Last year, we did about 50 percent less in subprime than we did the year before,'' Mary Haggerty, co-head of Bear Stearns' mortgage finance department, said in an interview, adding that it has been tightening Alt A standards since December. ``We always try to be ahead of the market.''

i cannot resist... bear sterns was not ahead of the curve upgrading new century just a few days befor the implosion and it has also lend big money to new century.....

da kann ich einfach nicht wiederstehen....bear war nicht ahead of the market als sie new century ein paar tage vor der implosion heraufgestuft haben. zudem haben sie etliche 100 mio$ kredite an new century ausstehen......

Other banks to provide credit facilities to New Century include Deutsche Bank, with $1bn, and Credit Suisse, with $1.5bn along with a slew of US lenders including Citigroup, Bear Stearns and Bank of America. http://tinyurl.com/2ulnue

make sure you read this piece from russ winter / ihr solltet zudem diesen link lesen http://tinyurl.com/2to526