Monday, March 05, 2007

Housing Bubble Bursting is spreading damage all across financial sector

From Jim Sinclair:

"Jim Sinclair’s Commentary
From the Inside!
CIGA Rusty Bayonet is on the frontline of what he speaks of! Throwing out your gold in light of what is occurring constitutes madness.
I am in there with a bag knowing I might have to suffer some pain, but not concerned as pain is part of success. No pain, no gain is a well known mantra of the professional trader. It is that hat I wear today as I see golden opportunity.
CIGA Rusty Bayonet’s Commentary”
"Apparently they have 11 warehouse banks. These banks issue high interest rate lines used to temporarily house loans for sale. These lines are not meant for permanent portfolio holdings. Because of the massive amount of buy-backs from these lines, they are being used up for buy-backs requiring NEW cash in a trust account for essentially a security deposit, which we learned they are having to go back and ask for waivers on.
The problem is these 11 warehouse banks have been upping the lines to accommodate massive buy-backs for a year. We are just hearing about it now. They have thrown enough good money after bad money and most are giving lenders margin calls, not waiving margin requirements. At this point knowing that 5 of 11 have issued a margin waiver and 6 are still outstanding, it is first to collect collateral wins. The 11 warehouse banks have to get those scratch and dent loans that are currently sitting on their lines, try to make them right somehow for sale. The important item to note is the first person in to collect collateral on a margin call wins. They get in first position like a mortgage.
These lines are $1 billion a pop guys - it is not time to mess around. It is time to collect and salvage what you can especially now that it has become clear to everyone with blinders on that the housing market is not bottoming anytime soon.
I have seen this a hundred times over the past 20 years. The first to shut down the line and collect collateral wins. Without lines these guys can't fund loans unless they do it with cash, which they have little of.
Game over guys - major player companies will have to file for BK protection this week. Certainly not much later.
Also, I know for a fact there was not a single buyer of sub-prime mortgage bonds last week. I have a buddy who trades them and said he could not find a bidder down to 93. This is bad, bad stuff.
Essentially the sub-prime industry ceased to exist last week."
"Just in case you accept the spin that sub-prime problems only impact 1% of loans and shady companies…
GM is getting killed due to the mortgage industry collapse. It turns out GMAC has a HUGE ($57 billion) investments in sub-prime mortgages.
GMAC's Subprime Mortgages a Threat to GM 2007 The Associated Press
Many analysts say GMAC's home-lending unit, Residential Capital LLC, known as ResCap, is not immune to the industry stress. The unit is heavily involved in the subprime mortgage business _ making and investing in such loans itself and providing funds to other mortgage originators.
Lehman Brothers analyst Brian Johnson estimated that loan-loss provisions and writedowns of mortgage securities at ResCap could cost GM $900 million to $950 million in cash charges in the first half of this year.
Among the areas of concern to analysts and investors: At the end of the third quarter, ResCap, long viewed as the crown jewel in GMAC's businesses, held $57 billion of subprime mortgages for investment, or 77 percent of its total loans held for investment. Its exposure to "residual interest" in mortgage securities _ the high-yielding slices that suffer some of the first losses if loan defaults are higher than expected _ was $1.4 billion as of Sept. 30"
More on Mortgage Crisis:
Are you still in doubt about the USD future? Rates will be CUT, REAL inflation will be UP with Bernanke reinflating (flooding with credit) in order to save economy from falling in to Deflation spin (remember 2002?) REAL RATES effectively will be NEGATIVE eroding further value of underling currency - USD: Gold and Silver containing Real Value will be flying high. Proper Juniors with Resources in the ground and trustworthy Team will be options without time value on Gold and Silver Bull Market Rise.

No comments: