Thursday Links: Silver and Steel

• 600 Years of Silver Prices
• Scroll down to the steel price history in this memo. No wonder asset stripping is taking off.
• Stop the Housing Bailout

Downey Financial Reports Higher Incidence of Delinquency When Minimum Payments Reset

Look at this amazing quote from the Downey Financial Corp. quarterly report (10-Q, March 31, 2008):

"A higher incidence of delinquency is expected when the minimum payments reset on our adjustable rate loans subject to negative amortization or interest only payments, whereby the interest rate is fixed for the first three to five years. For example, as of March 31, 2008, there were $976 million of loans subject to negative amortization or with interest only payments within our loans held for investment that have not been modified but had first time payment recasts since December 31, 2006, of which 36.1% were delinquent 30 or more days at March 31, 2008."

I first predicted this on April 4, 2007:

"More and more of the option ARM borrowers are going to be hitting the negative amortization 110% cap. ... When the option ARMs recast and the payments skyrocket, the delinquency rate is going to skyrocket."

Downey is down 80% since then.

What is Countrywide Worth?

Last summer I wrote two posts on Countrywide: Absurd CFC Rumor Presents Shorting Opportunity (August 21, 2007 with CFC at $21.79) and Why Countrywide is Done (August 28, 2007; $19.31).

My view then and now is that CFC is a zero barring a government intervention/giveaway like the Bear Stearns deal:

I just saw something that makes me much more confident in my Countrywide short and put options position. The manager of Second Curve Capital appears to be a Countrywide sympathizer.

Today in the WSJ I see that this viewpoint is continuing to take hold:

Investors remain skeptical that Bank of America Inc. will end up acquiring Countrywide Financial Corp. at the estimated $7.16 a share price agreed to months ago, and the company’s stock is continuing to sink in trading today.

Wednesday, Standard & Poor’s equity analysts chimed in, saying they believe Bank of America “will renegotiate a lower price due to large losses in CFC’s loan portfolio.” They value shares at $6 a share, on the expectations that the deal will be reworked.

In their research note An Involuntary Transaction: Why BAC + CFC May Never Close, Institutional Risk Analytics writes, "Given the outline above, our view is that the equity of CFC is worth $0."

I have no position in CFC but I own puts on a number of other lenders: BKUNA, CNB, COF, DSL, and SOV.

NYT: All of Inflation’s Little Parts

Neat graphic in the Saturday New York Times.

Tax Receipts Show California Downturn Continues

This is from the California State Controller's report on March 2008:

Total General Fund revenue for March 2008 was $375 million below (-6.5%) the revenue seen in March 2007. Sales taxes and corporate taxes accounted for most of the decline. Sales taxes were below March 2007 by $167 million (-7.6%) while corporate taxes lagged by $166 million (-10.7%). Income taxes were $70 million (4.2%) above last March. In total, the three largest taxes were $263 million lower (-4.9%) than March 2007.

Defaults on privately insured U.S. mortgages rose in February

NEW YORK, March 31 (Reuters)

Defaults on privately insured U.S. mortgages rose 38.1 percent in February, as a growing number of homeowners failed to keep up with their loan payments.

The Mortgage Insurance Cos of America on Monday said 60,911 insured borrowers were at least 60 days late on payments in February. That is up from 44,111 a year earlier, but down 11.7 percent from January's record 68,950.

On March 27, Radian Group Inc (RDN.N: Quote, Profile, Research), one of the largest mortgage insurers, said its main unit would no longer insure home loans where borrowers cannot document income or assets, citing the loans' "poor performance."

I had to double check the dateline. That should have been written in March 2007. Talk about slow learners!

Stop the Housing Bailout

People are getting organized to Stop The [incipient] Housing Bailout. Here's an email I got yesterday:

"We have created a website www.StopTheHousingBailout.com (currently hosted on NationalBubble) that is designed to be a clearinghouse of information for a movement against the bailout. The website is in its infancy, but currently consists of a statement why the bailout is wrong and several links to efforts to stop the bailout."

I don't think the Federal Government can afford to bail out the housing crash - it is too big - but that doesn't mean they won't try.