solarbird | weekend update

You really need to read Mish Shedlock's summary of T2 Partner's presentation on the housing situation. In particular, you need to understand that while subprime is mostly over, US$2.4T in Alt-A mortgages and $750B in OptionARMs were written, and OptionARMs are already failing at a 32% rate.

You also need to read his post about Fitch's analysis showing that up to 75% of the Making Home Affordable mortgages will fail within six months. Notably:

Diane Pendley, managing director at Fitch, said the problem is not on that "front-end" ratio, but on the back end, which is all of the borrowers other debt (credit cards, car loans, student loans, etc.). She said that in talking with servicers, she's hearing other debt is so high that most of today's troubled borrowers cannot afford any loan payment at all, even at a very modest debt-to-income ratio. 'Just getting the house payment done doesn't mean their lifestyle is sustainable,' she said.

"Another problem is that with home prices continuing to fall, more and more borrowers, who are essentially just renting their mortgages now because they will never see any home equity, are walking away. Even if the mortgage payment is low, the property taxes and home maintenance costs are padding that payment, and without an upside to the investment, there's simply no reason to pay. Suffice it to say, the foreclosure crisis, on the high and low ends, is not getting any better."

Here's the GM Bankruptcy Weekend Roundup: First, The Wall Street Journal's article. The Nikkei is up sharply on GM's bankruptcy assumption. The Federal government is going to own 60% of GM as of tomorrow - almost certainly - and Karl at Market Ticker thinks the primary bankruptcy is priced in, but that the supplier fallout will be extremely painful.

A substantial chunk of Chrysler LLC may be out of bankruptcy as soon as Monday, with another wind-down chunk being still in court for some time. The new company will be mostly owned by the United Auto Workers union's health-care trust, with a minority stake being held by Fiat, the US government, and the Canadian government.

Mix-and-match: Marketwatch's economist survey expects another 500,000 job losses in May. Official numbers won't be out until Friday. The IEA says electricity use will decline worldwide for the first time since 1945. The Fed is apparently confused by the yield-curve steepening in the US Treasuries market. I know some Austrian economists who would have a few words on that topic.

All for now. Good luck on Monday!