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News in this debacle is moving at light speed. In order to keep those of you intelligent enough to understand the effects of what is going on, I am going to do a few updates a day. Positioning several stories in one post for you all to read instead of different posts taking up space on site.

RPT-Fourth Bear Stearns asset-backed fund seems OK
Fri Aug 3, 2007 7:43AM EDT
(Repeats to widen distribution)

By Dan Wilchins

NEW YORK, Aug 2 (Reuters) - Bear Stearns Cos. Inc (BSC.N: Quote, Profile, Research), which has struggled with redemptions at three different hedge funds investing in repackaged debt, manages a fourth fund that invests in similar securities, but that fund appears safe, a source familiar with the fund said.

The fund, Bear Stearns Structured Risk Partners, turned in a positive performance in July and has not faced redemption requests, the source said.

The fund fell 9 percent in June, another source said, during a month when structured finance funds were broadly hurt amid the collapse of two Bear Stearns funds.

Many of the Bear Stearns Structured Risk Partners investors cannot withdraw money through at least year-end, another source said.

Bear Stearns Structured Risk Partners told investors at the end of May it had about 45 percent of its assets in asset- backed security capital structure arbitrage positions, roughly 18 percent in loan products, 21 percent in emerging markets, 10.5 percent in cash and the rest in other instruments. Determining the riskiness of those positions is very difficult based on that information.

Bear Stearns declined to comment.

Bear said in mid-July that two of its structured finance funds, the Bear Stearns High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, had very little value.

The two funds made bad investments in bonds linked to subprime mortgages, where defaults have surged and faced margin calls from banks and redemption requests from investors. Prior to their difficulty, the funds combined controlled assets of more than $20 billion.

Bear Stearns said on Tuesday it halted redemptions on another fund, the Asset-Backed Securities Fund, after jittery investors demanded their money back.

The assets in the Asset-Backed Securities fund are tied to mortgages made to prime borrowers, as well as mortgages made to people with decent credit records, but who are unable or unwilling to document their income, known as "Alt-A" borrowers.

Bear Stearns said the assets in the Asset-Backed Securities fund are worth more than current market conditions would indicate.

Bear Stearns Says No Liquidity Crisis,But Sees Tough Quarter

August 03, 2007: 03:55 PM EST

NEW YORK -(Dow Jones)- Bear Stearns Cos. (BSC) on Friday defended its financial strength and stability in response to a credit warning from Standard & Poor's, but said its profitability this quarter may sink to a historical low.

"The firm's liquidity position, capital adequacy and funding capacity remains extremely solid, notwithstanding the current market conditions," Bear Stearns Treasurer Upton said on a conference call with analysts Friday afternoon.

Bear Stearns also said it will be "solidly profitable" this quarter despite plunging stock markets, a bleeding residential mortgage market and the inability to shed multibillion-dollar buyout loans from its books. But profits will be near the low end, or below, historical norms, as measured by return on equity, the company said.

If the stock market recovers "to some level of improvement, I would expect the quarter to be at he low end of historical ROEs," Chief Financial Officer Samuel Molinaro said in the conference call.

Guy Moszkowski, an analyst at Merrill Lynch, said Bear Stearns's ROE, a key measure of shareholder profitability, has ranged from about 12% to 20%.

Shares of Bear Stearns, which fell as much as $9 after the S&P announcement, briefly recovered but began plummeting again during the conference call. They were recently changing hands down $5.07, or 4.4%, at $110.56.

S&P earlier Friday changed its outlook on Bear Stearns's long-term credit to negative from stable, citing potential litigation costs and revenue declines as a result of Bear Stearns's heavy exposure to mortgages, mortgage-backed securities and leveraged loans.

Scott Sprinzen, a managing director at S&P, said the rating agency's concern about Bear Stearns was greater than at rivals such as Lehman Brothers Holdings ( LEH), which also has a big exposure to making residential mortgage loans. Shares of Lehman were off recently by $4.03, or 6.7%, at $56.42.

Bear held the conference call to calm market jitters that it was suffering a major funding crisis that would allow it to continue financing clients in its trading, prime brokerage and banking businesses.

Chief Credit Officer Michael Alix said Bear has rejiggered its balance sheet to avoid reliance on short-term financing and is making money on hedges related to some large leveraged buyout loans it has been forced to keep on its books or has been selling at lower prices than anticipated.

Bear Stearns' has reduced its short-term commercial paper debt to $11.5 billion from more than $23 billion at the beginning of the year to calm concerns of funding crisis, he said. It also has about $11.4 billion of cash on its balance sheet, $18 billion of "unencumbered collateral" it can pledge to secure financing and secured funding that has risen from close to zero ten months ago to $35 billion today.

Brokerage firms rarely disclose such statistics before filing their quarterly earnings. "We are taking the situation seriously," Bear Stearns Chief Executive James Cayne in brief comments at the start of the conference call.

-By Jed Horowitz, Dow Jones Newswires; 201-938-4047;

NEW YORK (Reuters) - Shares of Novastar Financial Inc. (NFI.N: Quote, Profile, Research) fell 10 percent after the bell on Friday after it said it will temporarily suspend funding some of its loans.

Shares fell to $5.75 after closing at $6.40 on the New York Stock Exchange.

NEW YORK (Reuters) - The cost to insure the debt of Countrywide Financial Corp. (CFC.N: Quote, Profile, Research) surged on Friday as investors fretted over the impact of delinquencies by residential mortgage borrowers.

Countrywide's credit default swap spreads widened by almost 100 basis points, reaching more than 300 basis points, or $300,000 per year for five years to insure $10 million in debt, from 215 basis points at Thursday's close.

ncial Services
Bear Stearns Bares Its Soul

It's not every day that a big Wall Street firm has to hold a conference call to prove its creditworthiness, but these are not ordinary times.

Bear Stearns (nyse: BSC - news - people ), facing possible investor lawsuits over the implosion of two of its mortgage-laden hedge funds, severe pressure on revenues because of its exposure to the home and leveraged loan markets, and a possible bond-rating downgrade, says it's weathering the storm.

Investors have lingering doubts. Bear Stearns stock plunged 6% in late-Friday trading after top executives said on a conference call that the credit markets were the worst they've been in years and that July was a very challenging month for the firm.

"I want to assure you that we are taking the situation seriously," said James Cayne, Bear Stearns chairman.

Bear Stearns was profitable in June and July, boosted by record results in its securities-clearing operations and solid earnings in equities and overseas. But its fixed-income business, which includes mortgages and mortgage-related securities, suffered from the general shock that is gripping the bond markets. Return on equity for the company, a key measure of profitability, will be at the low end of the historic range, which is 12% to 20%, in the current quarter.

Fixed income had a poor July, and August's first few days have been difficult as well, said Sam Molinaro, Bear Stearns' chief financial officer, who has worked in the markets for more than 20 years. He compared the last six weeks to the market shocks of the 1987 stock market collapse, the Asian and Russian debt crises of the 1990s and the bursting of the dot-com bubble.

"These times are pretty significant," he said on the conference call Friday. "It's as bad as I've ever seen."

Markets rise and fall, but it's rare for a big Wall Street firm to have to come out and defend its soundness. Bear Stearns' conference call was arranged after Standard & Poor's said it changed its outlook for the firm's bonds to "negative" from "stable," but affirmed the senior debt rating at A-plus.

S&P cited concerns about Bear Stearns' exposure to the mortgage and leveraged loan businesses, two huge and growing sectors for the firm. In additions to losses from its position in the mortgage market, Bear Stearns is on the hook for commitments it made to help finance several large buyouts, which now are hung up in a loan market that has no lenders.

Molinaro tried to assure analysts on the call that the firm had adequate capital to withstand the beating it is taking from the bond market upheaval and the near lack of liquidity in the loan markets. All that is forcing Bear Stearns and other banks and brokerage houses to swallow commitments to deals they normally would finance only temporarily, before selling bonds off to long-term investors.

Bear Stearns has more than $11 billion in cash and $11.5 billion in short-term loans outstanding (but that is down $23 billion from January as the firm reduces its reliance on commercial paper.) It has more than $76 billion in capital.

Friday's developments at Bear Stearns seemed to put pressure on other financial services companies' shares. Lehman Brothers (nyse: LEH - news - people ), another huge player in the mortgage and mortgage securities business, saw its stock fall almost 7% in afternoon trading Friday. Shares of hedge fund manager Fortress Investment Group (nyse: FIG - news - people ) were down more than 6%.

The financials led the entire stock market lower. In late trading, the Dow Jones industrial average was down 1.8%, or 242.89 points, at 13,220.44.

Molinaro told investors he believed the company's exposures to mortgages and leveraged loans were manageable, well-hedged and prudently funded. Bear Stearns' prime brokerage division, which facilitates trades and trade financing for hedge funds, has little or no exposure to structured mortgage and loan products. Redemptions in the firm's asset management division--which oversaw the troubled hedge funds--will likely continue "but has not been a tidal wave by any stretch."

Molinaro acknowledged that the difficult bond market would likely choke off some investment banking activity down the road.

Sounds as if Bear will be glad to put the third quarter, which ends on the last day of August, behind it. "We just weathered a pretty significant storm," Molinaro said. "The environment was not easy in June. July was very very bad. Hopefully August will be better."

S&P slashes Bear Stearns outlookStephanie Baum
03 Aug 2007 updated at 17:11
Standard & Poor’s has slashed Bear Stearns’ outlook to negative from stable following the collapse of two of its leveraged hedge funds.

S&P analyst Diane Hinton said the change in the ratings outlook was over concerns over recent developments with the bank’s asset management division. Two leveraged hedge funds based on collateralized debt obligations tied to poor bets in the sub-prime mortgage market had lost most of their value in recent weeks.

With a bankruptcy case and legal action against the company, Hinton said there was potential for negative developments to cause more hurt for the bank.

Hinton said: "We believe Bear Stearns' reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses."

Following S&P's downgrade, Bear Stearns' shares tumbled 7% to a new low for the year of $106.55 (€77.30), before edging back up on the heels of a statement by the bank deriding the rating agency's concerns over issues relating to the hedge funds as unwarranted and isolated incidences.

James Cayne, Bear Stearns chief executive, said: "Contrary to rumors in the marketplace, our franchise is profitable and healthy and our balance sheet is strong and liquid."

Despite the negative outlook, S&P did not change the A+ issuer credit rating for Bear Stearns and its affiliates.

Hinton said: “Despite these challenges, we expect Bear Stearns to be profitable in the current quarter.”

Mayiz Habbal, managing director of securities and investments at Celent, a Boston-based financial research and consulting firm, said the change in S&P's outlook was overdue.

She said: “S&P’s move is in reality a late but necessary adjustment based on the fact that Bear’s stock is down more than 20% since early June. Bear Stearns’ management is in a tough position and it is going to be difficult to turn the ship around amid this storm.”

Earlier this week, the funds filed for Chapter 15 bankruptcy to cover the High Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leverage Fund. Chapter 15 bankruptcy is designed to address insolvency cases involving more than one country.

On Wednesday, New York law firm Zamansky & Partners filed an arbitration claim against Bear alleging the bank misled investors over the funds. An attorney with the firm, Jake Zamansky, expects to file up to $100m (€73m) in claims against Bear Stearns on behalf of hundreds of investors.

The collapse of the hedge funds has acted as a catalyst for the downturn in the credit market. Sales of collateralized debt obligations, which group bonds, loans and their derivatives together into new debt before being sold-on with varying risk profiles, fell to just $6.1bn in the US this month, from $36bn in June, according to analysts at JP Morgan.

By Matt Koppenheffer

I found a bit of humor in Bear Stearns ' (NYSE: BSC) press release on Monday, which said that the company is now the official sponsor of college squash. After all, this comes as the firm is becoming the poster child for hedge funds getting squashed by the choppy credit market.

The pain hasn't abated yet for Bear. The firm announced on Wednesday that its alphabet-soup hedge funds -- The Bear Stearns High-Grade Structured Credit Strategies Master Fund and The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund -- have officially filed for bankruptcy. Problems arose when both funds swung for the fences in the home mortgage market -- and missing badly. Both funds were also very highly leveraged, compounding the severity of their losses to the point of no return.

To be sure, Bear isn't the only one firm there with some sour positions in the credit market. Another hedge fund, Sowood Capital Management, has recently made headlines after losing half of its $3 billion in capital due over the past month.

The blowups have Mr. Market gnawing on his nails, for obvious reasons. Publicly traded companies that manage hedge funds, such as Goldman Sachs (NYSE: GS), Fortress (NYSE: FIG), Lehman Brothers (NYSE: LEH), and JPMorgan (NYSE: JPM), could be sitting on ticking time bombs of their own. And as the credit markets continue to reevaluate risk and reprice the debt that's out there, there's the potential for a painful ripple effect.

But how far will the ripple go, and how turbulent will it be? As always, it's tough to predict the future, but it's probably safe to say that while there are some broad ramifications on the way, they won't be as bad as what's going on with the hedge funds. Like Bear, many hedge funds take concentrated positions and use leverage to enhance their returns. This means they make a killing if they're right, but lose money even quicker if they're wrong. Non-hedge funds with exposure to risky debt are less likely to have their positions as concentrated or as leveraged and so will take milder hits.

Hopefully, the squash sponsorship will work out for Bear; right now, it has shareholder lawsuits to look forward to from the two bankrupt hedge funds. To boot, recent reports have revealed that a third fund, the Asset-Backed Securities Fund, is also starting to struggle. For the rest of the market, it may just take time to figure out just how far down this rabbit hole goes.

© 2006 Universal Press Syndicate

Bear Stearns Rating Outlook Cut on Mortgage Concern (Update6)
By Yalman Onaran

Bear Sterns Cos. headquarters
Aug. 3 (Bloomberg) -- Bear Stearns Cos., the manager of two hedge funds that collapsed last month, had its credit-rating outlook cut to negative by Standard & Poor's on concern declining prices for mortgage-backed securities will reduce earnings.

Shares of Bear Stearns fell 6 percent, bringing this year's decline to more than 33 percent. The perceived risk of owning the New York-based company's bonds rose to the highest in at least six years. Chief Executive Officer James E. Cayne said in a statement today that the company was ``solidly profitable'' in June and July.

Bear Stearns, whose credit rating was increased last year to A+, now may be downgraded because of the debacle in residential mortgages that began in November. Chief Financial Officer Samuel Molinaro said the fixed-income market is ``as bad as I've seen it'' in 22 years. A reduction would leave Bear Stearns with the lowest credit rating of the five biggest U.S. securities firms.

``This might cause the spread on their bonds to widen further,'' said Tom Jalics, an analyst at National City Bank in Cleveland who helps manage $32 billion, including Bear Stearns shares. ``The biggest concern is whether there'll be big writedowns on the balance sheet.''

The rating could fall if Bear Stearns incurs large losses, S&P said in a statement, adding that the company has enough cash and other assets to meet short-term funding requirements.

Moody's Outlook

Moody's Investors Service said the mortgage crisis doesn't have ``negative rating implications at this time.'' The New York- based rival to S&P said in a statement that its stable outlook remains unchanged for the biggest banks and securities firms because it's satisfied with their risk-management policies.

Bear Stearns's debt is rated A1 by Moody's, the equivalent of S&P's A+.

Shares of the company dropped $7.28 to $108.35 in composite trading on the New York Stock Exchange at 4:47 p.m., after reaching $106.55 earlier today. Shares of Lehman Brothers Holdings Inc., the largest underwriter of mortgage-backed bonds in the U.S., fell 7.7 percent to $55.78.

The perceived risk of owning Bear Stearns's bonds soared to the highest since at least November 2001, according to credit- default swap traders who bet on creditworthiness.

Credit swaps based on $10 million of its bonds surged $35,000 to $155,000, according to broker Phoenix Partners Group in New York. An increase signals deterioration in investor confidence.

`Overplayed' Reaction

S&P analyst Scott Sprinzen said the market reaction to today's rating announcement was ``overplayed.''

``If we had such grave concerns about the prospects here, we would have cut the rating,'' Sprinzen said in an interview. Only the outlook was reduced, which many times doesn't lead to a downgrade, Sprinzen said.

Bank of America analyst Michael Hecht said in a report that the hedge fund failures at Bear Stearns were ``isolated issues,'' and not indicative of a wider problem at the firm.

Bear Stearns' $1 billion of 5.55 percent subordinated notes due in 2017 fell about a cent to 90.4 cents on the dollar as of 4:12 p.m. in New York, according to Trace, the bond-price reporting system of the NASD. The extra yield, or spread, investors demand to own the debt instead of similar-maturity Treasuries widened 25 basis points to 226 basis points, Trace data show. The spread has more than doubled since the beginning of June. A basis point is 0.01 percentage point.

Bond Returns

Bear Stearns bonds lost 1.09 percent on average in July, compared with a 0.29 percent return for the typical investment- grade corporate bond, according to Merrill Lynch & Co. index data.

``Credit ratings are the top priority'' for a finance company, said James Lyman, who helps manage $37 billion in fixed- income at Fischer Francis Trees & Watts, a unit of BNP Paribas Investment Partners. ``If they go below A, it's a serious problem. If they get downgraded a notch it's still a problem because people start to lose faith.''

S&P said Bear Stearns has a ``relatively high degree'' of reliance on the U.S. mortgage and leveraged-finance markets, and its revenue and profit would be hurt if there were an extended downturn in those businesses.

KKR Deal

A flight from risky debt since the mortgage rout began has damaged efforts to fund leveraged buyouts. Banks underwriting loans for Kohlberg Kravis Roberts & Co.'s takeover of Alliance Boots Plc today canceled the sale of $2 billion of debt after failing to find investors. The aborted sale increases the amount of debt New York-based KKR's underwriters have been left holding to $16.8 billion.

At the end of the second quarter, Bear Stearns had the smallest number of unfunded commitments among the biggest five brokers to non-investment-grade companies being bought out, according to CIBC World Markets. Bear Stearns had $2.3 billion of commitments outstanding, compared with $54 billion at Lehman and $71 billion at Goldman Sachs Group Inc.

Return on equity for the current quarter may be near the historical lows for the firm, Molinaro said on the call. It has ranged between 12 percent and 20 percent, according to Merrill Lynch & Co. analyst Guy Moszkowski. Bear Stearns's ROE was 15.6 percent in the second quarter, which ended in May.

Subprime Loans

Late payments on subprime home loans, those made to the riskiest borrowers with lower credit scores, rose in the first quarter to the highest level since 2002, according to the Mortgage Bankers Association. At least 70 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, Bloomberg data show.

``I've been out here for 22 years, and this is as bad as I've seen it,'' Molinaro said on a conference call with analysts. He compared the crisis to 1998, when hedge fund Long-Term Capital Management collapsed and Russia defaulted on its debt.

The Bear Stearns funds that failed, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, invested in subprime mortgage-related securities. Bear Stearns loaned $1.3 billion to one of the funds after lenders demanded their money back.

Cayne called their meltdown ``a body blow of massive proportion'' in an interview with the New York Times in June.

Other hedge funds have also announced losses. Macquarie Bank Ltd., Australia's largest securities firm, said earlier this week that investors in two hedge funds may lose 25 percent of their money. Boston-based hedge fund manager Sowood Capital Management LP said it lost $1.5 billion in July after declines in the corporate debt markets.

Banks, Insurers

Banks and insurers ranging from UBS AG in Zurich to CNA Financial Corp. in Chicago have reported losses related to subprime mortgage debt. UBS, the world's biggest money manager, replaced Peter Wuffli as chief executive officer in July after three quarters of declining earnings and losses at one of its hedge funds that invested in securities linked to subprime loans.

Subprime loans make up less than 3 percent of Bear Stearns's revenue, according to the company. Still, the firm is more reliant than its rivals on the U.S. markets for revenue. In the second quarter, 80 percent of Bear Stearns's revenue came from the U.S., compared with less than half for Goldman Sachs Group Inc., the largest securities firm by market value.

To contact the reporters on this story: Yalman Onaran in New York at .

U.S. Housing Is Among `Biggest Bubbles,' Rogers Says (Update3)
By Chen Shiyin and Pimm Fox

For Sale signs on a corner in San Diego
Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.

``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''

No Big Disaster

Some investors say sustained consumer spending and jobs growth may help offset the impact of mortgage defaults.

A report due later today may show that payrolls rose 127,000 after a 132,000 gain in June, according to the median estimate of economists surveyed by Bloomberg. The jobless rate is forecast to hold at 4.5 percent for a fourth month, near a six-year low.

``Subprime will not derail the economy and we're not calling for a big disaster,'' said Hans Goetti, Singapore-based managing director at Citi Private Bank, which has assets of $100 billion in Asia. ``Consumer spending will not fall off the cliff as a result.''

The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than- forecast earnings will help offset the impact of mortgage losses.

Financial Stocks Down

A measure of financial companies such as Countrywide Financial Corp. has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index. Countrywide Financial, the biggest U.S. mortgage lender, said yesterday it has ``significant'' sources of short-term funding after the slump in demand for loans pushed some rivals toward bankruptcy.

Shares of Bear Stearns Cos. fell 13 percent last week after two of its hedge funds failed because of the subprime crisis. Merrill Lynch & Co. is down 3.6 percent this week, heading for its third weekly decline, while stock in Lehman Brothers Holdings Inc. is 5.9 percent lower.

The housing slump may extend into 2008 because of stricter mortgage standards and a glut of properties. IndyMac Bancorp Inc. yesterday said it is joining rival lenders in making ``very major changes'' to home-loan standards and charging higher rates because of a slump in mortgage securities.

U.S. homebuilders rose yesterday, pushing a Standard & Poor's index of 16 such companies to a 4.1 percent gain, the measure's biggest advance in six months. The index has dropped 35 percent this year after the worst housing slump in 16 years left eight homebuilders nursing quarterly losses of $1.97 billion.

Beazer Homes

Beazer Homes USA Inc.'s stock jumped 14 percent yesterday, the most ever, after hedge fund Citadel Investment Group LLC almost doubled its stake in the homebuilder. The company has lost almost three-quarters of its market value this year.

``This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''

China is a market that Rogers isn't selling even as the fallout from subprime drag on share prices worldwide, he said. He's sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.

``China's the next great country in the world and we must learn about investing in China, because that's where fantastic fortunes are going to be made in the next century,'' Rogers said. ``I would be looking at China very carefully.''

The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.

``I'm not of a mood to pronounce the end of the world just yet,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``You only have to go back three years to see how debt was being priced as if there was no risk at all. Well, there is risk, and it's simply being priced back in.''

To contact the reporter on this story: Chen Shiyin in Singapore at ; Pimm Fox in New York at

Last Updated: August 3, 2007 03:52 EDT

Lenders Broaden Clampdown on Risky Mortgages
Tightening Standards
Could Worsen Slump
In the Housing Market
August 3, 2007; Page A3

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.

This worsening credit crunch threatens to put further pressure on the housing market, where prices are flat to declining in much of the country.

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. Notably, American Home Mortgage Investment Corp., which stopped making loans earlier this week, said late yesterday it would cease most operations, slashing its work force to about 750 from more than 7,000.

"It is with great sadness that American Home has had to take this action," Chief Executive Michael Strauss said in a statement. "Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative."

Lenders are tightening standards and "raising rates like crazy," said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. 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.) A Wells spokesman said rates are lower on loans made directly by the bank than on those through brokers.

The market for mortgage-backed securities is "very panicked," Michael Perry, chief executive of IndyMac Bancorp Inc., another big lender, said in a message on the lender's Web site yesterday.

Seeking to soothe the market, Countrywide Financial Corp., the nation's largest home lender, said it had plenty of funds available to weather the industry's troubles.

The fright among investors is forcing lenders to go back to more-conservative practices that were the norm before the housing boom of the first half of this decade. Many now are focusing on loans to borrowers who are willing to document their income, can make a down payment of at least 5% and have a history of paying bills on time.

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.

This credit squeeze "will further crimp the effective demand for housing, and will make the late summer home-sales season even worse than the dismal spring season," said Thomas Lawler, a housing economist in Vienna, Va.

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.

Some people use so-called low-doc loans to avoid paper work or because they are self-employed and have trouble showing a steady stream of income. But low-doc mortgages also can be used by people exaggerating their incomes.

National City Corp., another large lender, said yesterday that it is suspending originations of stated-income loans, which don't require the borrower to verify income. Wachovia Corp. 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.

Several dozen lenders have gone out of business in the past six months, and others are teetering. Shares of Accredited Home Lenders Holding Co. fell 35% yesterday on the Nasdaq Stock Market after auditors said its "financial and operational viability" is uncertain if a pending merger isn't completed.

Write to James R. Hagerty at and Ruth Simon at


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What's This?

C-BASS Retains Blackstone Grp To Assist In Getting Capital

August 3, 2007 2:33 p.m.

C-Bass LLC, an affiliate of MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN) that issues and invests in credit-sensitive residential mortgage assets, retained Blackstone Group as a financial adviser as it tries to obtain more permanent capital.

C-Bass, a New York-based company, received a large number of margin calls due to disruption in the credit markets, the company said.

-Monica M. Clark; 201-938-5400;

Quote 0 0
Earlier this week, the funds filed for Chapter 15 bankruptcy to cover the High Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leverage Fund. Chapter 15 bankruptcy is designed to address insolvency cases involving more than one country.
****************************** isn't that just too bad.

Those deadbeats cannot pay their bills. 

Let me say it again,

Those deadbeats cannot pay their bills. 


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Ignorant At Best
Just Wondrin',

Some of U just keep harpin' on tha Bare.  What % of market does the Bear have against the % of MGIC & Radian + C-BASS? 

Some might cunsidur the e'fects of the MGIC-Radian issue to be of reasonable significance.

Bein' Ignernt, I' probly rong.

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MGIC/RADIAN/CBASS/LITTON LOAN, are markets for the Bear, meaning that companies like CBASS put together funds for the BEAR to buy!
Should MGIC/RADIAN go down the entire market may very well crash around it, not many know the inside workings of the Hedge Funds, and how many were put together, by so few! You are right asking the question about the comparison, Solomon, and a number of Banks, like Ocwen, US Bank, etc should be very concerned.  As was said by someone from MGIC yesterday, "We hope their is no run on the bank..." 
MGIC finally spoke, on "Staying the Course".  How smart they are.  What other course do they have?  Chapter 11? or what?  MGIC/RADIAN/CBASS/LITTON LOAN for these companies its now only a matter of time.  The numbers don't add up with MGIC, 1.6 Billion in reserves.  With over a Billion now in claims and raising faster than anticipated, along with an IRS tax liability over 400 million maybe closer to 900 million I heard.  MGIC is Bankrupt, they just have not filed it yet.  As for CBASS, the wave's of litigation against them and now investigations opening against them will bring them down, they don't have the money anymore.  They stopped funding Field stone loans, after they bought the company.  The only way for them to save themselves is to FORECLOSE ON TENS OF THOUSANDS OF HOMES!! 
please read my past links on the "indiviudals" resposiable for all of this and the "Stragtic Partners" they created! 
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