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    Daily Digest – August 7

    by Davos

    Friday, August 7, 2009, 2:53 PM

  • Deutsche Bank: Construction Loan Defaults Coming
  • 16 Million Homeowners Underwater
  • Foreclosures: One Giant Wave, Still Building
  • On how many different levels is this statement idiotic?
  • $75 Billion In New Treasuries On Deck
  • 2nd U.S. Bank-For-Businesses Facing Bankruptcy
  • Shadow Inventory
  • 2 Trillion in Deficits and House Orders Up Three Elite Jets
  • ICN, Audit the Fed and 18 Million Vacant Homes (Video, H/T iDoctor)
  • Jim Sinclair (Sudio H/T HuckleJohn)
  • Recessions Over: 34,000,000 Use Food Stamps First for the U.S.
  • Please ‘Google’ Fannie Mae seeks $10.7B in US aid after 2Q loss (Due to AP restrictions)

Economy

Deutsche Bank: Construction Loan Defaults Coming

• By far the riskiest type of loan product in bank portfolios;
• Substantial portion represents loans to homebuilders;
• Market currently penalizing properties with vacancy issues extremely severely;
• Newly constructed (or only partially constructed) properties are the poster children for vacancy problems in CRE;
• Values of most newly constructed properties are down massively;
• Expect extremely high default rates and extremely high loss severity rates, both likely to be in excess of 50%;
• Total expected losses of 25% or more.

In a reversal of the Residential Real Estate market, the exposure for large money center banks is low — smaller regional and community banks have the highest construction loan exposure.

16 Million Homeowners Underwater

The percentage of properties “underwater” is forecast to rise to 48 percent, or 25 million homes, as property prices drop through the first quarter of 2011, according to [Deutsche Bank] analysts Karen Weaver and Ying Shen. I guess Deutsche Bank didn’t get the memo about house prices finding a bottom.

Please ‘Google’ Fannie Mae seeks $10.7B in US aid after 2Q loss (Due to AP restrictions)

Foreclosures: One Giant Wave, Still Building

Note: Graph is for Orange County only.

From Matt Padilla at the O.C. Register: Foreclosure wave gathers momentum

“To say there is a second wave implies the (current) wave has receded,” [Sam Khater, senior economist, First American CoreLogic] “I don’t see that the wave has receded.”
Click on graph for larger image in new window.

This graph is from Matt based on data from American CoreLogic.
Khater said … federal and state efforts have mostly delayed foreclosures, preventing few. … So to tune out the noise, just look at the 90-day rate. In Khater’s view it shows “one giant wave.”
UPDATE: Matt provided me with the definitions:

 On how many different levels is this statement idiotic?

On how many different levels is this statement idiotic?
A British newspaper reported Sunday that a group of eminent economists have apologized to Queen Elizabeth II for failing to predict the financial crisis.

The letter of apology to the Queen goes on to say:
“In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

$75 Billion In New Treasuries On Deck

If you missed your chance to stock up on double ply UST (T is for toilet) paper, fear not: you will have another chance to buy some again… and again… and again. The first opportunity will be on August 11th and 12th, when a total of $75 billion pieces of paper, backed by another rapidly deflating piece of paper will be made available for your indirect (or is that direct?) auction pleasure.

Specifically:

$37 Billion in Three Year Notes;

$23 Billion in Ten Year Notes;

$15 Billion in Thirty Year Notes;

And here is how America became $304 billion dollars more indebted to China (and Itself compliments of monetization), since July 24. That’s a almost a third of a trillion in new debt issued in under a month.

(New LEI?) 2nd U.S. Bank-For-Businesses Facing Bankruptcy

Reuters reported today that American Capital Ltd, another specialist in financing businesses, just reported a 2nd quarter loss of $547 million, while acknowledging it remains in default on a $2.3 billion “credit agreement”. Meanwhile, its operating results produced less than half the revenues analysts had expected.

Shadow Inventory

But this is the ultimate head fake. Those subprime loans are still toxic and there are some $400 billion outstanding and there are some $660 billion in Alt-A loans most of it calling California home:

 2 Trillion in Deficits and House Orders Up Three Elite Jets

Last year, lawmakers excoriated the CEOs of the Big Three automakers for traveling to Washington, D.C., by private jet to attend a hearing about a possible bailout of their companies.

But apparently Congress is not philosophically averse to private air travel: At the end of July, the House approved nearly $200 million for the Air Force to buy three elite Gulfstream jets for ferrying top government officials and Members of Congress.

ICN, Audit the Fed and 18 Million Vacant Homes (Video, H/T iDoctor)

[video:http://www.youtube.com/watch?v=EvnohTtUDdU]

Jim Sinclair (Sudio H/T HuckleJohn)

Recessions Over: 34,000,000 Use Food Stamps First for the U.S.

For the first time, more than 34 million Americans received food stamps, which help poor people buy groceries, government figures said on Thursday, a sign of the longest and one of the deepest recessions since the Great Depression.

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