S&P raises default forecast

Standard & Poor's Monday boosted its expectations for losses on risky loans backing U.S. mortgage securities to as much as 40 percent, suggesting a darkened outlook for the troubled housing market.

The more dire assessment will likely "significantly impact" bonds originally carrying AAA ratings, S&P said in a report.

Increased assumptions for total losses on subprime and Alt-A residential mortgage-backed securities come amid declines in market value of the debt and a surge in the inventory of bank-owned properties, S&P said.

S&P boosted loss projections for subprime loans made at the peak of the market in 2006 and 2007 to 32 percent and 40 percent from 25 percent and 31 percent, respectively.

For 2005 loans, loss projections rose to 14 percent from 10.5 percent.

SOURCE: REUTERS VIA CNBC

April S&P/Case Shiller numbers improve from March; pace of decline slows

April numbers from the S&P/Case Shiller home price index are in, dropping 0.6% from April to March, moderating previous months' declines:

Prices of U.S. single-family homes fell in April from March but the pace of the decline moderated, suggesting stability is emerging in some regions, according to Standard & Poor's/Case Shiller home price indexes released on Tuesday.

An index of 20 metropolitan areas dipped 0.6 percent in April from March, after a 2.2 percent decline the month before, for an 18.1 percent downturn from a year earlier.

The month's slide was smaller than the 1.8 percent drop forecast in a Reuters poll.

S&P's index of 10 metropolitan areas declined 0.7 percent in April for an 18 percent year-over-year drop, after falling 2.1 percent month on month in March.

The good news is that the San Francisco MSA increased 0.6% from March to April, up from a 2.2% decrease from February to March. The MSA is down 28% YOY.

Of course, these numbers are from April. May data will most likely continue the trend (since that represents closings on contracts initiated 30-60 days earlier), but with the rate increases experienced during May, we could very well see a decrease again once June numbers come in (around August). Will it have a negative effect on the psychology of the market? Anything is possible at this point. If nothing else, it will give print journalists a reason to doubt a bottom (and hence, the cycle of real estate continues).

SOURCE: CNBC and STANDARD AND POORS

Is this a good idea??!!

Robert Shiller, of S&P/Case-Shiller House Price Index fame, is set to launch a new financal derivative product this month

MacroShares’ Major Metro Housing product, brainchild of economist Robert Shiller, will offer investors a way of betting on rising house prices by buying “Up” shares, or expressing pessimism via “Down” shares. Unusually, these won’t be backed with the underlying physical housing assets.

Instead, MacroShares will be tied to the Standard & Poor’s/Case-Shiller Composite 10 Home Price index. When the Up and Down shares float, proceeds will be invested in U.S. government bills to ensure liquidity. If the index moves up, the trust behind the Down shares will shift a corresponding portion of its assets to the Up shares trust, raising the net asset value underlying the Up shares. The prices should follow.

Aren't financial derivatives tied to real estate what helped us into our current global financial mess? Or will the ability to invest in "Down" shares balance the optimism that led to valuations at 30x with mortgage-based securities?

Let's just hope AIG isn't planning on insuring your investment in Major Metro Housing!

SOURCE: WSJ