Tuesday, February 13, 2007
What Happened Yesterday
- RESmae declared Chapter 11 bankruptcy and Credit Suisse will buy some of its assets, that is, if they turn out to be assets.
- The ECC purchase by Bear Stearns was completed with provisions that make the purchase price and any payoff for investors substantially dependent on loan performance for loans that have already been written. ECC had to pay Bear Stearns 7 million to get out from under. These two events show that risky loan portfolios are now viewed like environmentally contaminated sites - worth less than zero on the market.
- The ABX-HE melted down. The weakness extended into the top tranches. It may not look that impressive, but the failure to recover from last week confirmed that future loans will have to be written on more traditional terms in order to be saleable. No matter how joyous and profitable the journey on the Nina, the Sisa and the No-Ratio vessels has been, it is now obvious that these vessels are taking water fast and there is a pronounced unwillingness of financial royals to pay to patch their bulkheads - maybe because of stuff like this.
- The result was that the already rapid changes in lending standards escalated to a new, feverish, no-one-really-knows-what-we're-doing pace. Fremont announced that it was dumping stated 100s and seconds. Accredited also contacted its brokers and said that it was Alt-A, prime and bridge loan.
A symposium of sorts on the developments in housing and housing-related finance is taking place at Calculated Risk. There is no other place on the web that I know of that provides such a wide-ranging and balanced discussion. There are knowledgeable participants in a wide range of fields providing input and data. It's a remarkable resource.