According to Standards & Poor's, the number of delinquencies for both Subprime and Alt-A mortgages continues to increase to record levels. Loans funded between 2005 and 2007 now average close to 17% that are currently delinquent for the Alt-A mortgages. In many cases, the average FICO credit score for these Alt-A mortgage borrowers were over 700.

The Subprime mortgage delinquencies for loans funded in 2006 hit 37% nationwide, and 26% delinquencies for Subprime loans funded in 2007. In many cases, lenders are holding off in starting their foreclosure process with borrowers 60, 90, or 120+ days late as the lenders don't want too many foreclosures hitting their books at once.

As lending has tightened so dramatically in just the past 6 months, most borrowers are not going to be able to qualify for any type of mortgage at a lower rate. As a result, we may expect to see the number of mortgage delinquencies and foreclosure filings to hit all time highs as time goes by. Median prices may continue to fall dramatically in most parts of the U.S. especially in placees like California, Arizona, Nevada, Florida, and parts of the Midwest.

Analysts from Oppenheimer are predicting an even more severe downturn in the U.S. economy as the Credit Crisis worsens. They are projecting that many U.S. banks may take an additional $170 Billion in writedowns (or losses) within the year. 

These same analysts believe that the securitization of the consumer lending market (credit cards, auto loans, etc.) will tighten significantly in the near term as these credit markets "freeze" even more. As a result of tighter consumer lending guidelines, this may remove more than $3 TRILLION of available consumer loans by the end of this year. 

As a result of less consumer loans, more bank customers may default due to the lack of available new "fresh" loans from banks. Many U.S. homeowners are beginning to realize that they can not readily access money from their credit cards, home equity lines of credit, or even qualify at all in today's tighter mortgage lending world for any type of decent loan regardless of how low the Fed takes interest rates.

As the U.S. housing market is faced with ongoing price drops and sluggish home sales around the nation, most people are now spending less money on remodelling their homes. As a result, home improvement stores like Home Depot are seeing their store sales drop dramatically.

Home Depot's profits dropped over 66% in the 1st quarter of '08 as many people were unable to tap their already "frozen" home equity lines of credit, or obtain new forms of cash out 1sts or 2nds from their respective lenders. Without the access to cash out from their homes, many homeowners are unable to remodel their homes.

As a result, small to large retail stores like Home Depot are experiencing less sales at their various stores. Will this trend continue to worsen, or will things slowly begin to improve? We shall see as time goes by.

Fannie Mae, after receiving tremendous pressure from builders, lenders, government officials, and many others, has recently eliminated their "declining markets" loan policy. Fannie Mae, the largest investor of mortgage loans in the U.S., had ranked many parts of the U.S. (including most or all of California, South Florida, parts of Arizona and Nevada, and other regions) as "riskier" areas to lend in due to the severe housing downturn in many parts of these areas.

When a region was labeled as a "declining market area", the normal lending loan to value ranges may have been reduced another 5% to 10%. For example, a 90% LTV loan in most parts of the nation would have been reduced to 80% to 85% in California. This meant that home buyers in California would have had to bring in an additional 5% to 10% down payment to buy their home in "riskier" California.

The "declining market" guidelines were potentially compounding the losses in many "distressed" areas of the U.S. Hopefully, the new guidelines may ease the problems in this "riskier" regions. Most new loans may at some point be guaranteed by the U.S. government through new flexbile Conforming/Jumbo and FHA guidelines up to $729,750 loan amounts.

This may be a good thing for home values across the U.S. While the job losses associated with the U.S. home building industry will be massive, the 30%+ drop in new home starts (April '08 as compared to April '07) may help reduce the current and future unsold home inventory levels. 

In April '08, builders broke ground on over 692,000 housing units. This was the lowest number of new home starts in one month since January 1991. There will be a number of small to large home builders across the country who will go out of business in the near future. There will be a lot of great deals from motivated builders if you know where to find these deals.

Barclays 1st quarter earnings were very negative partly due to their extensive holdings of American Collaterized Debt Obligations (CDOs) tied to U.S. home mortgages. Barclays also projected further potential losses in the near term from the continued Credit Crisis meltdown.

Many analysts estimated that Barclays announced $3.3 Billion in writedowns may have been substantially less than what they should have announced as actual losses. Barclays, Northern Rock Bank, Royal Bank of Scotland, and several other large regional banks in the U.K. area have all taken billions of dollars (U.S.) of losses primarily related to their investments in some form of American Mortgage Backed Securities (MBS). 

Even with all of these announced losses, the British Pound currency is still trading at 2 to 1 as compared to the weakening U.S. Dollar. Ironically, more Brits are now interested in purchasing discounted U.S. real estate with their much stronger currency.

California properties are being auctioned off during the final stage of the foreclosure process (the Trustee's Sale) at a pace of over 1,000 properties per day. Even with the additional lender discounts of the existing mortgage debt, almost 97% - 98% are not being purchased by third parties. As a result, the vast majority of these properties are going back to the banks.

The April '08 foreclosure data for California increased almost 44% to over 22,000 homes. The estimated combined loan value was close to $9.45 Billion. Each month since the start of the Credit Crisis, the number of foreclosures escalates. Most lenders these days are holding off in filing the Notice of Default to begin the foreclosure process as they are trying to work with the homeowners in order to reduce their record number of non-performing mortgages.

The prime areas of the state with record foreclosures include Santa Barbara, and coastal areas in Orange and San Diego Counties. In Marin County (Northern California), foreclosures increased 96% in just one month alone. While in Orange County, foreclosures increased 82% in one month. The expectations are that California foreclosures will only increase, and banks will be saddled with even more non-performing loans and vacant REO foreclosed properties.

Carlyle Group's Chairman David Rubenstein predicts significant losses ahead for financial institutions around the world. Carlyle is one of the most well known Hedge Funds in the world. Chairman Rubenstein believes that most banks have yet to realize their actual losses from their investments in mortgage pools through CDOs, SIVs, and other forms of creative investing.

Financial institutions around the world have recorded over $329 Billion in credit losses and writedowns since 2007. In addition, they have raised over $246 Billion in new capital to help cover the losses. Many of the losses have come from Sovereign Funds abroad (i.e. Middle East and Asia) to date. However, these same funds have seen their equity investments plummet in value since 2007 so that may not be as motivated to continue investing more funds to bail out many of our banks.

The Carlyle Group believes that there will be a lot of prime assets for sale by these struggling financial institutions over the next few years. They are planning to acquire some of the better prime assets (real estate, mortgages, etc.) at substantial discounts. The investment opportunities in the near term may be unprecedented as financial firms are forced to unload as many assets as possible for much needed cash.

Citibank recently announced their plans to sell off between $400 Billion and $500 Billion in assets over the next three years. These assets may include "non-core" investments as well as real estate, mortgage pools, and collaterized debt obligations (CDOs).

As banks and investment banks will be forced to add their "off balance sheet investments" (such as SIVs - Structured Investment Vehicles) back on to their main balance sheets by the end of this year due to new legislation, we may see more financial institutions begin to unload more assets for cash.

The increased supply of financial assets for sale may only drive prices down further in a "vicious downward asset spiral". More Hedge Funds are getting margin calls on many of their increasingly leveraged investments. As a result, they too are unloading their prime assets for much needed cash. This may also cause future prices to move downward. 

The Credit Crisis continues to worsen. Don't believe the hype that things are improving!!! Hyperinflation may be just around the corner with increasing consumer prices and decreasing asset prices. There will be many investment opportunities if you have the access to cash.

Fannie Mae, the largest purchaser of loans in the U.S. secondary market, currently has close to $2.7 Trillion in mortgage loans on their books. Yet, they only have $42.7 Billion in capital backing those loans up. 

As reported the other day in this Blog, Fannie Mae just reported a recent quarterly loss of $2.19 Billion. They also announced they may have to raise an additional $6 Billion in capital through new stock offerings. 

With declining home prices in many parts of the U.S., Fannie Mae's collateral will begin to deteriorate in value. You can expect record foreclosure properties taken back in 2008 and 2009 (at least). There will be a lot of bargain REO (Real Estate Owned bank foreclosure) deals available to purchase for quite some time.