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Lenders Broaden Clampdown on Risky Mortgages Hagerty & Simon, WSJ 8-03 Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans, extending well beyond the market for subprime loans for people with the weakest credit records. Lenders say they are being forced to raise interest rates and stop offering certain loans because mortgage-bond investors have lost their appetite for a broad range of mortgages considered risky. That includes those dubbed Alt-A, a category between prime and subprime that often involves borrowers who don't fully document their income or assets, or those buying investment properties. Alt-A loans accounted for about 13% of U.S. home loans granted last year, according to Inside Mortgage Finance, and subprime loans about 20%. Industry executives have said subprime lending is likely to shrink by more than 50% this year, and now much of the Alt-A market is vanishing too. National City Corp. said yesterday that it is suspending originations of stated-income loans, which don't require the borrower to verify income. Wachovia said it had stopped making Alt-A loans through brokers, joining a trend among big lenders to rely less on outsiders to arrange mortgages. Wells Fargo told brokers this week that it was making "day-to-day" decisions on the pricing and availability of Alt-A loans amid reduced investor demand. Wells Fargo is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week. (Jumbo loans are those too large to be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.) Several dozen lenders have gone out of business in the past six months, and others are teetering. American Home Mortgage Investment stopped making loans earlier this week, and said yesterday it would cease most operations, slashing its work force to about 750 from more than 7,000. Tom Lamalfa, managing director of Wholesale Access, a mortgage-research firm in Columbia, Md., expects that half or more of the market for no- and low-documentation loans will disappear. S&P Sees Weaker Second Half for Large U.S. Banks Reuters 8-06 A drop in capital markets activity will cause a "meaningful decline" in revenue for large U.S. banks in the second half of this year, but rating downgrades are unlikely, Standard & Poor's said on Monday. Rating outlooks for banks such as Citigroup, Bank of America and JP Morgan Chase all remain stable, even though troubles in the credit markets will cause the second half of 2007 to be "considerably weaker than the first," S&P said in a report. "As the activity in fixed-income markets, particularly in the leveraged loan and structured finance markets, has almost ground to a halt, we should see fewer fees and less secondary market trading income associated with them," S&P said. Banks reported strong second-quarter results, but those were forgotten as the market began focusing on exposure to mortgage-related securities and "hung" loan deals, S&P said. "Hung" bridge loans are ones that banks were unable to syndicate and were forced to keep on their books. The number of outstanding bridge loans could grow because of several large, leveraged buyout deals do not appear to be priced adequately to clear the market, S&P said. In addition, some banks have equity bridges that could run into difficulties, the rating agency said. Banks will face more pain as they mark such deals down to clear the market, but the problems should be manageable "as long as there is no credit event for one of those loans," S&P said. "For now, we expect these companies to continue to withstand the turn in the cycle and do not foresee any effect on debt ratings," S&P said. S&P also has a stable outlook on U.S. Bancorp, Wachovia and Wells Fargo. A stable outlook typically indicates a rating change is not expected over the next two years. Another rating agency, Moody's Investors Service, on Friday published a similar report, saying turmoil in the subprime mortgage market is not threatening ratings of major banks because of their diversified earnings power. Bank of America to Invest $2 Billion in Countrywide Valerie Bauerlein, WSJ 8-22 Bank of America Corp. is making a $2 billion equity investment in Countrywide Financial Corp., the embattled mortgage giant, according to people familiar with the situation. Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.25%, and that can be converted into common stock at $18 a share, those people said. Countrywide, the nation's biggest mortgage lender in terms of loan volume, and many rivals are struggling to regain the confidence of investors and depositors amid a surge in defaults that has made it harder for the lenders to borrow money and raised questions about their financial health. Last week, the commercial-paper market, a critical source of short-term funding for an array of companies, was becoming inaccessible for a growing number of companies. Most notably, Countrywide last week tapped an $11.5 billion credit line because it was facing funding difficulties. Because investors are recoiling from buying mortgages deemed risky, Countrywide and other lenders are being forced to concentrate on home loans they can either keep as long-term investments or sell to government-sponsored mortgage investors Freddie Mac and Fannie Mae. Countrywide said last week that it aims to use its bank unit to provide funding for a much larger proportion of its loans than in the past. Ratings Changes On 7-18 Punk, Ziegel Downgraded BAC, Citi, JPM and WB from Buy to Market Perform. On 7-19 CIBC World Markets Upgraded JPM from Sector Perform to Sector Outperform. On 7-24 Citigroup Upgraded WB from Hold to Buy. On 7-25 Punk, Ziegel Downgraded PNC from Buy to Market Perform. On 7-25 Jim Cramer said he'd buy BAC off Wednesday's dividend rise and sell JPM, which is facing big credit risk from all the big buyout deals whose loans are not finding on buyers in the syndicate market. Similarly, Cramer would buy Citi and sell Bear Stearns on similar thinking. On 7-05 PNC declared a dividend of 63 cents per share payable 7-24-07 to shareholders of record 7-13-07. On 7-16 Citigroup declared a dividend of 54 cents per share, payable on 8-24-07 to stockholders of record on 8-06-07. On 7-25 BAC raised its dividend to 64 cents from 56, payable on 9-28-07 to stockholders of record on 9-07-07. Home Page Factoids Previous Update |