Earlier today on Real Money’s columnist conversation, Tony Crescenzi noted earlier
that "It would be extraordinarily unusual for the combined figures on
new and existing home sales to continue falling in the face of
increases in mortgage applications."

I have to disagree.

Based on our interviews with our Real Estate clients (commercial
builders, RE brokers) and especially residential Mortgage Brokers,
there appears to be a dramatic rise in multiple applications for both
new purchases, refis, and home equity lines.

As many of the ARM resets come up over the next 18 months, I would
surmise these multiple mortgage apps will increase — especially
amongst the more desperate marginal homeowners.

Meanwhile, we see Defaults on ‘Alt A’ loans surpassing Subprime ones,  according to Citibank:

"Defaults on some so-called Alt A
mortgages packaged into bonds last year are now outpacing those
from subprime loans, according to Citigroup Inc.         

The three-month constant default rate for 2006 Alt A hybrid
adjustable-rate mortgages is 2.3 percent, compared with 2.2
percent for subprime ARMs, New York-based Citigroup analysts led
by Rahul Parulekar wrote in a July 20 report. . . "          

More than $800 billion of subprime mortgage bonds and $700
billion of Alt A bonds are outstanding, with ARM bonds totaling
more than $600 billion and $450 billion, respectively, according
to a March report by Zurich-based Credit Suisse Group."         

And, as we mentioned yesterday, its NOT just Alt A and Subprime, according to Countrywide CEO Angelo Mozila:

"Countrywide Financial, the nation’s largest mortgage lender, said yesterday that more borrowers with good credit were falling behind on their loans and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades."

Incidentally, I was on Kudlow with Mr. Mozila about a year ago. Nice guy, he gets credit in my book for being a bluntly candid  speaker. As it turns out, he is also a canny seller of his own stock — a net of $380 million, according to Thomson Financial.

As I said at the time, it was smart they were diversifying away from Housing, but I wouldn’t touch Countrywide Financial (CFC) with a 10 foot pole — and that’s still true today.

UPDATE: July 25, 2007 12:34 pm


"Home resales in the U.S. fell for a fourth straight month in June, a sign housing remained mired in the worst slump in 16 years going into the second half.

Purchases last month declined 3.8 percent to an annual rate of 5.75 million, the slowest pace since November 2002, from a revised 5.98 million in May that was less than initially reported, the National Association of Realtors said today in Washington.

Rising borrowing costs are discouraging buyers, leaving a glut of unsold homes on the market and dimming prospects for a quick recovery in housing. Federal Reserve policy makers last week trimmed their economic growth forecast amid persistent weakness in home building."

When even the NAR start revising forecasts diownward, you know that we are nowhere near that elusive bottom . . .


Defaults on Some `Alt A’ Loans Surpass Subprime Ones
Jody Shenn
Bloomberg, July 24 2007

Top Lender Sees Mortgage Woes for ‘Good’ Risks
NYTimes, July 25, 2007

Home Resales in U.S. Fall 3.8% to 5.75 Million Rate
Joe Richter
Bloomberg, July 25 2007

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Kansas City Shadow Fed / Maine Fishing Trip Recap

I am back home, rested and refreshed after a wonderful few days on the lakes of Maine (and a grueling weather impaired return trip).

I wanted to give y’all a recap of the "Kansas City Shadow Fed Meeting" up in Grand Stream Lake, Maine. This is an invitation only  gathering that David Kotok of Cumberland Advisors has been running for the past few years. We all stayed at Leen’s Lodge on Grand Lake Stream, ME. Economists, strategists, fund managers, Fed employees, traders, journalists all mingle on the water and in the lodge. The participant who traveled the furthest came from Chile. A certain Scotsman regaled us with tales in that charming brogue, frequently punctuated with exclamations of "Crrrappp!" and "Foook!"

The entire event was under "Chatham House Rule" — meaning, I can not quote anyone by name or tell you which economist got drunk and danced until midnight (but one did).

But I can say that this is a very fine group of folk. The weekend was filled with good conversation, lots of wine, fine cigars, too much scotch, and outstanding fishing. we fished all three days — it rained on Friday, cleared on Saturday, was gorgeous on Sunday. I caught more freshwater fish than I ever have (and I spent the summers of my youth fishing in upstate New York). My canoe mate was hedge fund manager Scott Frew. Most days we pulled in 30-40+ fish — everything from Bass to Pickerel to the especially delicious White Perch. We released most of the Bass, and ate most of the Perch. On my last cast of the weekend, I pulled in the biggest freshwater fish I have ever caught — a fat 19" Bass that must have weighed 4 – 5 pound. Simply outstanding.

The weekend’s second biggest highlight — the first being that 19-incher — was the Saturday evening betting. Wagers are made by the group on S&P, 10 year, Fed Funds, Oil, Gold, Dollar/Euro, and CPI exactly one year hence. I made all bets, except CPI, choosing to boycott any BLS data. It was lots of fun.

David and I started an interesting side bet on the price of oil — over/under $66 — which attracted a lot of attention, and quite a few participants.

Here’s a bit of quirkiness: My outlook on the US economy was probably the most bearish of the entire group; at the same time, I probably had the most fully invested investment posture in terms of our managed accounts versus the rest of the fund managers. Kinda weird . . .

A few other interesting items worth relating:

Economics: The general consensus seems to be that the economy is middling, with some expecting it to slow further, and a few of the economists expecting a 2H re-acceleration. No one really thinks housing has bottomed, and I got the sense that I was the most moderate person in terms of how much further real estate prices will fall.

Politics: An interesting split between the two most esteemed political observers in the group: Both expected Mitt Romney to be the GOP nominee, while Obama/Clinton as the Dem nominee.

Markets: There was general caution amongst the group, with the expectation that a 5% correction is very probable. The range of other bets covered whether the markets run much further or get hit much harder  in the future.

The Fed: Likely to be on hold for the foreseeable future. The inside line is that Bernanke is a much bigger inflation hawk than Greenspan ever was. 

BLS: Clear consensus is there is no vast conspiracy manipulating there data. They have models, all models are biased, therefore their model is biased. I was surprised to hear a very experienced, highly placed participant mention in passing that he thought the Fed paid little attention to BLS data. Rather interesting.

If you have never spent an afternoon gently rocking in a small canoe on an northern glacial-formed lake, surrounded by pristine forests, with Loons crying in the distance as Bald Eagles wheel in the skies overhead, I highly recommend it.

Bottom line is that I expect to be back in Maine next summer . . .


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