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Sean Crowley

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JP MORGAN PLAN ON MORTGAGES

11-03-08
Sean Crowley

JP Morgan has announced that they will modify the terms on $70 billion of mortgages.

JP Morgan launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be. The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms. The changes will particularly focus on a type of loan structured in such a way that the borrower's outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September.

This is one of several plans in the works to assist homeowners nationally. While this may not affect Maui directly it clearly will help the national market.

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THE CONTINUING CREDIT CRISIS AND THE RECESSION

10-31-08
Sean Crowley

Over the past several days there have been several major events on which to report.

  • First on the general economy. If we weren't sure? We are now. The recession is here. If the economy shrank .3% in the quarter ended September? Then it isn't going to improve between now and December given the fallout from the financial trainwreck in October;
  • The Federal Reserve has cut the Fed Funds rate to 1% from 1.5%, citing declining consumer spending;
  • Wells Fargo has completed their sale of $25 billion in preferred stock to the US Treasury;
  • The credit markets continue to creep, and we mean creep, into improvement but no significant improvements as of yet;

For more details, contact us.

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LATEST CASE SHILLER RESULTS

10-31-08
Sean Crowley

Standard and Poor's has released their Case-Shiller Home Price Indices for August.

Data through August 2008 released by Standard and Poor's for its S&P/Case-Shiller Home Price Indices, the leading measure of US home prices, shows continued broad based declines in the prices of existing single family homes across the United States.

What the press release doesn't go into is a very interesting phenomenon in markets Maui property owners would care about. In markets like Los Angeles, Seattle and Denver, the rate of price declines slowed in August. What do we mean. Well in Los Angeles for example the August monthly decline was 1.8%. Multiply that by 12 for an annual decline and you get 21.6%. A terrible number, but better than the last twelve month decline of 26.7%. In other words the rate of decline is slowing. A speck of good news anyway. Now to be fair, this sales data all came in advance of the October financial markets meltdown. For details, contact us.

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SOUTHERN CALIFORNIA SALES JUMP

10-22-08
Sean Crowley

Dataquick has announced that sales in Southern California jumped dramatically in September:

Southern California home sales shot up by an unprecedented 65 percent last month from the dismal, record lows of a year ago, when a credit crunch slammed the brakes on home financing. September sales also posted a rare gain over August as price cuts lured more buyers. Foreclosure resales rose to half of all transactions..."You have to view last month's sales in the proper context," he cautioned. "They represent escrow closings, which reflect purchase decisions made in mid-to-late summer. That was before the dramatic worsening of the nation's economic crisis in recent weeks. Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand."

So while this is undeniably good news, the question becomes is it sustainable and how long before this trend hits Maui? Economists estimate the lag is usually six months.

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THE BAILOUT VERSION 2

10-15-08
Sean Crowley

The Federal Government will buy approximately $125 billion of preferred stock in nine large banks in the first step of injecting $250 billion in banks across the country. Here are the key components of the plan:

  • The structure will be as a dividend paying perpetual preferred stock
  • Dividend rate to be 5% initially and increasing to 9% after five years
  • Companies that return the money in 2009 will get better terms
  • B of A, JP Morgan and Citigroup will get $25 billion each
  • Goldman Sachs and Morgan Stanley will get $10 million each
  • BONY and State Street will get lesser amounts
  • FDIC will guarantee newly issued senior debt issued by these firms for a period of three years

To give some idea of just how massive these injections are as of June 30, Citigroup had a little over $100 billion in tangible shareholders equity and another $27 billion in perpetual preferred. This infusion will increase the shareholders equity by approximately 20% and could potentially increase Citigroups' ability to lend by a staggering $300 billion. For Bank of America that would also increase lending capacity by $300 billion. This is why this is a superior answer to the credit crunch compared to the initial legislation that passed two weeks ago. Indeed the TED spread we talked about as an indicator of the health of the credit markets has already eased somewhat.

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