The housing decline will continue "fast and maybe even faster" than predictions, said David Blitzer, the managing director at Standard & Poor's and chairman of the S&P 500 Index Committee
With that much of their portfolio concentrated on OptionARMs and so many paying the minimum the reckoning may be a long way off, as long as they can survive on limited cash flow.
The borrowers paying mimimums are borrowing money and time. It's doubtful many can make the fully amortizing payments, but so far, everything's fine. Music may not stop for a while...
Moody's and McGraw-Hill shares tumbled in February and March on concern that rising subprime mortgage defaults will slow demand for ratings of CDOs. The shares have since recovered on speculation that the subprime fallout will be contained. Last week, Citigroup Investment Research William Bird increased his share-price forecast for Moody's by $2 to $80.
Long-term, we like both'' Moody's and McGraw-Hillas we're confident in the secular thesis of financial engineering and their oligopoly market position,'' Credit Suisse Group analyst Brandon Dobell in Chicago said in an April 19 research report on the companies. He rates the shares of Moody's ``market weight.''
The subprime pullback in January and February will hurt products such as CDOs ``during the May-June timeframe, potentially creeping into the second-quarter and third-quarter results,'' Dobell wrote in the report.
"The portfolio of single family loans with a one-year fixed monthly payment totaled $4.4 billion at March 31, 2007 compared to $4.6 billion at December 31, 2006 and $4.7 billion at March 31, 2006. "
what does this means ?
i.e.
When is the adjustment ? is it that for all $4.4B is it this year ?
Why is the decline in from 4.7 to 4.4 over a year ? does this means:
a. re-fi
b. adjustment occured already
c. new loans (to replace b+c) did not catch up
oxy, mixed story...
"The inventory of unsold homes rose by 1,000 to 545,000 in March, representing a 7.8-month supply. The inventory is down 1.4% compared with a year earlier, the biggest year-over-year decline ever recorded. "
7.8 month supply means less starts in future. They cut production last spring very aggressively. Maybe now they won't cut so fast, but they will.
I think the report is in line with expectations of good folks of this board: worse then consensus but not horrible. If the housing crash has to take 5 years then it can't happen too fast.
Inventory down 1.4%, sales down 22.2%. Inventories are massively high. Good news is that starts have come down more than sales, so if nothing else goes wrong (and what could?), then some of the pressure may come off starts. Except for that inventory problem...
Just to save you guys from doing the math, neg-am represented 58% of their EBT. FED sure sounds like a winner! Wish I had shorted some back when it spiked $2.00+ around 45 minutes ago.
This FED report from Marketwatch of which Tanta highlights the negative amortization income stream showing that although revenue from general loan interest is generally higher ( 7.96% vs 6.66% ) the company is suffering ~4 times the losses from these specific loans...so far.
Loan originations in the first 3 months compared to 06: about one third => not an expansion quarter...or year...or two?
The message seems to be that this bank is not at risk because of its healthy loan portfolio ("Allowances for impaired loans" left blank, making some nervous.) despite being 97% adjustable mortgages, with non-performing assets a piddly 0.46%.
Unlike the rest of the industry...so a rose among the skunk cabbages?
Nonetheless this company is rated "market-weight", by those that have been among the skunk cabbages for so long that they just wouldn't know.
[Purchases rose 2.6 percent to an annual pace of 858,000 last month from a 836,000 rate in February
Builders broke ground on new homes at a 1.518 million annual rate, up 0.8 percent from February]
Building almost twice as much as they are selling on seasonally adjusted basis. That's as we are heading into a credit tightening cycle with an already huge overhang of inventory. Big time game of chicken...
calmo, I see new originations down and portfolio running off. Interestingly, the runoff is increasingly in loans past their prepayment penalty.
Does this lower their exposure to OA? Sure.
Does this mean that the worst loans are refinancing out and they're left with all the good ones? Not on your life.
They're working on ending up with a "residual" portfolio with overrepresentation of borrowers who can only make the minimum payment. That's why you see neg am increasing while total portfolio balance is falling.
The comment that the increase in negative amortization is due to the increase in short term interest rates is well founded, contrary to Aaron's comment. The amount of negative amortization is the difference between the minimum payment and the fully indexed interest only payment. When the fully indexed payment changes monthly based on indexes like the MTA, every increase that occurs monthly increases the amount of negative amortization. The MTA has gone consistently up while the minimum payments in these programs is typically only scheduled to adjust every year, capped at 7.5% to the payment. Add to this the increased popularity of these programs and you have an increase in the amount of negative amortization nationwide.
Very true that the increase in Neg am is a byproduct of libor or mta rate increase. However it may also signal that more borrowers are choosing the lowest option each and every month. Many of us look at out balance on our CC (ugh!!) but I would venture that a significant portion just look at the payment amount. Sames thing could be said of people who choose the option arm as the mortgage vehicle. They may know in the back of their mind somewhere that the minimum payment is probably not the best thing to do but when they write the check it is inevitably always for the minimum payment. Sure yes, we are going to have to get used to many and many more lenders using accrued interest as earnings. We'll probably won't get any hit on these lenders until one have to come clean because of the losses incurred on uncollectability on their portfolio. Regarding many of the REITs that are booking these accrued interests as earnings/income, thus are treated as income to disperse as dividends to shareholders. What will happen to these REITs if they have to restate earnings/income once these accrued interests are not collectable? Will the shareholders be responsible for paying back the dividends?
Are any analysts looking at FCF in these lenders? Sooner or later they will need to see cash come in.
What will the last straw be?
FED is way up on the open--so this a strong report (?) or at, it does not confirm fears.
It makes no difference, because the headline today is
DOW AT 13,000!
Anything else is filler.
S&P 500 Chairman Sees Sunny Side To Housing Slide - CNBC
The housing decline will continue "fast and maybe even faster" than predictions, said David Blitzer, the managing director at Standard & Poor's and chairman of the S&P 500 Index Committee
With that much of their portfolio concentrated on OptionARMs and so many paying the minimum the reckoning may be a long way off, as long as they can survive on limited cash flow.
The borrowers paying mimimums are borrowing money and time. It's doubtful many can make the fully amortizing payments, but so far, everything's fine. Music may not stop for a while...
Moody's Profit Rises on Structured Finance Ratings (Update5) - Bloomberg.com
Moody's and McGraw-Hill shares tumbled in February and March on concern that rising subprime mortgage defaults will slow demand for ratings of CDOs. The shares have since recovered on speculation that the subprime fallout will be contained. Last week, Citigroup Investment Research William Bird increased his share-price forecast for Moody's by $2 to $80.
Long-term, we like both'' Moody's and McGraw-Hillas we're confident in the secular thesis of financial engineering and their oligopoly market position,'' Credit Suisse Group analyst Brandon Dobell in Chicago said in an April 19 research report on the companies. He rates the shares of Moody's ``market weight.''
The subprime pullback in January and February will hurt products such as CDOs ``during the May-June timeframe, potentially creeping into the second-quarter and third-quarter results,'' Dobell wrote in the report.
The second. The market celebrates that FED is no near chapter 11. And then, who knows, maybe all defaults will be bailed out...
Negative amortization has increased over the last two years primarily due to increases in short-term interest rates.
Translation: for some reason these things are acting like ARMs. We could not have foreseen that.
Barely,
Remember the chart: Option ARMS reset in 2010-2011
Tanta maybe you can repost the link
"The portfolio of single family loans with a one-year fixed monthly payment totaled $4.4 billion at March 31, 2007 compared to $4.6 billion at December 31, 2006 and $4.7 billion at March 31, 2006. "
what does this means ?
i.e.
a. re-fi
b. adjustment occured already
c. new loans (to replace b+c) did not catch up
Tnx.
New home sales come in at 858K vs 890 expectations, Feb's number revised down to 836K vrom 848K...the hits keep coming
I can't find new homes inventories. Anyone?
Bloomberg report does not sweeten the shit:
New-Home Sales in U.S. Increased 2.6% to 858,000 Pace in March - Bloomberg.com
oxy, mixed story...
"The inventory of unsold homes rose by 1,000 to 545,000 in March, representing a 7.8-month supply. The inventory is down 1.4% compared with a year earlier, the biggest year-over-year decline ever recorded. "
Those OAs started experiencing rate adjustments probably in the month after the first payment.
They won't recast until 60 months after closing or the day they hit the balance cap, whichever is sooner.
They wouldn't be negatively amortizing if the accrual rate were not higher than the rate used to establish the initial payment.
"Rate adjustment" is a big issue on amortizing ARMs. "Payment recast" is the big issue on IOs and neg ams.
7.8 month supply means less starts in future. They cut production last spring very aggressively. Maybe now they won't cut so fast, but they will.
I think the report is in line with expectations of good folks of this board: worse then consensus but not horrible. If the housing crash has to take 5 years then it can't happen too fast.
Inventory down 1.4%, sales down 22.2%. Inventories are massively high. Good news is that starts have come down more than sales, so if nothing else goes wrong (and what could?), then some of the pressure may come off starts. Except for that inventory problem...
Yal, when they say "fixed monthly payment" they mean "payment."
"Rate" is another thing entirely. When "payment" is not enough to satisfy "rate," you get neg am.
We straight again?
Just to save you guys from doing the math, neg-am represented 58% of their EBT. FED sure sounds like a winner! Wish I had shorted some back when it spiked $2.00+ around 45 minutes ago.
what I never found is a good way to evaluate how much of the Neg-arm (accumulated as earning over 2 years now) will never be paid.
Some of it was paid when loans were re-fi but there are no longer many re-fi (see report they say so)
Some of it was paid when homes were sold (but we know that this is down and for loans made in the last 2-3 years that part can not be large)
so we have maybe 95% of their accumulated neg arm income which is still owed to them and how can we evaluate how much of this they will never see ?
about cash: these are banks. they have to have some cash due to regulation.
I found DSL cash situation puzzeling:
DSL: Cash Flow for DOWNEY FINANCIAL CP - Yahoo! Finance
as well as FED:
FED: Cash Flow for FIRSTFED FIN CP - Yahoo! Finance
This FED report from Marketwatch of which Tanta highlights the negative amortization income stream showing that although revenue from general loan interest is generally higher ( 7.96% vs 6.66% ) the company is suffering ~4 times the losses from these specific loans...so far.
Loan originations in the first 3 months compared to 06: about one third => not an expansion quarter...or year...or two?
The message seems to be that this bank is not at risk because of its healthy loan portfolio ("Allowances for impaired loans" left blank, making some nervous.) despite being 97% adjustable mortgages, with non-performing assets a piddly 0.46%.
Unlike the rest of the industry...so a rose among the skunk cabbages?
Nonetheless this company is rated "market-weight", by those that have been among the skunk cabbages for so long that they just wouldn't know.
About New Home sales figures?
[Purchases rose 2.6 percent to an annual pace of 858,000 last month from a 836,000 rate in February
Builders broke ground on new homes at a 1.518 million annual rate, up 0.8 percent from February]
Building almost twice as much as they are selling on seasonally adjusted basis. That's as we are heading into a credit tightening cycle with an already huge overhang of inventory. Big time game of chicken...
calmo, I see new originations down and portfolio running off. Interestingly, the runoff is increasingly in loans past their prepayment penalty.
Does this lower their exposure to OA? Sure.
Does this mean that the worst loans are refinancing out and they're left with all the good ones? Not on your life.
They're working on ending up with a "residual" portfolio with overrepresentation of borrowers who can only make the minimum payment. That's why you see neg am increasing while total portfolio balance is falling.
Of course, that means BUY STOCK!
DOW AT 13,000!
The super nova of a dying currency.
The comment that the increase in negative amortization is due to the increase in short term interest rates is well founded, contrary to Aaron's comment. The amount of negative amortization is the difference between the minimum payment and the fully indexed interest only payment. When the fully indexed payment changes monthly based on indexes like the MTA, every increase that occurs monthly increases the amount of negative amortization. The MTA has gone consistently up while the minimum payments in these programs is typically only scheduled to adjust every year, capped at 7.5% to the payment. Add to this the increased popularity of these programs and you have an increase in the amount of negative amortization nationwide.
Very true that the increase in Neg am is a byproduct of libor or mta rate increase. However it may also signal that more borrowers are choosing the lowest option each and every month. Many of us look at out balance on our CC (ugh!!) but I would venture that a significant portion just look at the payment amount. Sames thing could be said of people who choose the option arm as the mortgage vehicle. They may know in the back of their mind somewhere that the minimum payment is probably not the best thing to do but when they write the check it is inevitably always for the minimum payment. Sure yes, we are going to have to get used to many and many more lenders using accrued interest as earnings. We'll probably won't get any hit on these lenders until one have to come clean because of the losses incurred on uncollectability on their portfolio. Regarding many of the REITs that are booking these accrued interests as earnings/income, thus are treated as income to disperse as dividends to shareholders. What will happen to these REITs if they have to restate earnings/income once these accrued interests are not collectable? Will the shareholders be responsible for paying back the dividends?
I just dont give a fuk.. I made my money