WTF!! January New Home Sales Plummet 16.6% !!

for a near DOOM !!

:snapo:

NEW YORK — The cratering of the subprime mortgage industry could present more than just a pothole for General Motors Corp.

The world's largest auto maker disclosed Thursday that it will need more time to file its 2006 annual report with the Securities and Exchange Commission, marking the second year in a row the company has postponed the key filing.

Many analysts attribute this year's delay to a substantial hit the Detroit-based automaker might take from the exposure its part-owned finance unit _ GMAC Financial Services _ has to the business of making mortgage loans to people with weak credit or heavy debt burdens.

The entire mortgage industry is feeling the pressure from slowing home sales, intensifying competition and rising past-due loans. Higher delinquencies on subprime mortgages _ in large part due to a sharp deterioration of underwriting standards last year _ have in recent months forced a slew of lenders, big and small, to set aside more capital for potential loan losses.

In many cases, lenders have also been forced to write down the value of their mortgage securities. 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. Meanwhile, ResCap is one of the biggest providers of short-term "warehouse" funding to smaller mortgage lenders.

"While warehouse lending is typically secured, the recent rash of bankruptcies among smaller lenders increases the risk the company will have loss exposure with this product," said analyst Kathleen Shanley at GimmeCredit, which says investors should sell their ResCap bonds.

Warehouse lenders including Merrill Lynch & Co. have found themselves on the hook when subprime mortgage lenders like Ownit Mortgage Solutions Inc. and Mortgage Lenders Network filed for Chapter 11.

The deterioration of the sector has caught even sizable lenders off guard. HSBC Holdings PLC, one of the world's largest banks, said in early February it's putting aside an extra $1.76 billion _ 20 percent more than analysts had expected _ to cover bad debts, largely due to higher than expected losses on U.S. subprime mortgages.

New Century Financial Corp., one of the nation's largest subprime lenders, told investors it will cut its already reported earnings for the first three quarters of last year. The main culprit: inadequate capital set aside for repurchases of soured loans sold earlier to investment banks.

ResCap said in January it will eliminate 1,000 positions by October to reduce costs as the mortgage lender grapples with the continued deterioration in the subprime mortgage sector. The company now has 14,000 employees worldwide. In a filing with the SEC, ResCap estimated that it would incur about $10 million in severance and related costs associated with the work-force reduction.

"We continue to believe GM equity is complacent about the potential impact of such subprime exposure," Bear Stearns auto analyst Peter Nesvold wrote in a note. He said the weakness at GMAC due to subprime problems is one of the key risks facing GM.

The automaker sold 51 percent of GMAC for $14 billion to Cerberus Capital Management. The deal closed in November, but GM and Cerberus have since been trying to determine whether the value ascribed to GMAC at the time is reliable and if either side needs to pay settlements to adjust the purchase price.

GM continues to own 49 percent of the lending unit and relies on GMAC's health, because the unit backs GM's major incentive programs by offering attractive leasing and financing terms.

Shares of GM fell 35 cents, or 1.1 percent, to close Thursday at $31.55 on the New York Stock Exchange.

[link to www.chron.com]

Spectacular rise of US home foreclosures: 10 million Americans out on the street

In 2006, US foreclosures increased by 42% , directly affecting an average of 1 US household out of 92. In states such as Colorado, California, Ohio, or Texas, 1 household on 35 or 40 falls victim of foreclosure. In October through December 2006 in Ohio, 3.3% of homes and apartments were filed in foreclosure . The pace of foreclosures accelerates as the number of insolvent US households increases (cf. GEAB N°10 on the issue of insolvency): in 2006, over 1.2 million foreclosures affected 4 to 5 million US citizens (counting between 3 and 4 persons per household).

Level of foreclosures in the US in December 2006
According to LEAP/E2020, the year 2007 will register at least a doubling in the number of foreclosures (3) due to the surge of record high numbers of mortgage loan refinancing on the market (close to 2,000 billion USD). 2 to 3 million homes will probably be filed in foreclosure and about 10 million US citizens thrown out of their homes in the course of this year. All those who doubt whether the US actually entered a “very great depression” should pay a visit to field reality and observe the devastating effect of the housing and financial crisis for millions of Americans (4). Scores of blogs appeared on the web trying to review the on-going housing disaster and the stream of human tragedies (5). Taking into account that a US citizen has three months between initial default on interest repayment and actual foreclosure, LEAP/E2020 estimates that it is indeed in April that the second wave of foreclosures will hit the US market.