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April MICA data.
http://www.privatemi.com/news/statistics/pdfs/April-2007-Press-Table.pdf
Tanta, do you understand why cure ratio is so volatile?
sorry for the double post but I just noticed that if you are sub-prime your chance of forclosure go DOWN:
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OFHEO has been published. 4.3% YoY, +0.5% in Q1. Yeah, right.
"These losses are (from) reset only," Cagan says. "I do not study job loss, death, divorce, illness or fraud."
Talk about living in fantasyland.
Chicago Purchasing Managers' May Index Rises to 61.7 (Update2) - Bloomberg.com
We interupt your regularly scheduled ruminations (as poszi did earlier) for this news. Non-residential construction spending in April was up 1.1%, with gains on both the private and public side of things. The revised GDP data also showed faster spending on non-residential structures than did the initial Q1 GDP release. I believe we are officially behind schedule for a decline in non-residential construction spending.
OFHEO data disagree with other, similar measures of home prices, do they not?
CR is up and working on a post on non-residential construction spending, which will appear soon.
10yr is at 4.91% last time it was there was in Feb.
GDP revised downward...way downward.
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In organizations that have both prime and sub-prime mortgages, what you get is determined by which door you walk in.
When is the last time you saw a sub-prime mortgage sales person say - Wow, you qualify for a prime mortgage, you should go over and see sales person X who handles prime mortgages.
Common Sense Forecaster
"Chicago Purchasing Managers' May Index Rises to 61.7"
This index tends to have spikes. So this may be partly and aberration. But I do think business spending will pick up unless a drop in consumer spending chokes it off.
Tanta,
Please could you tell me (us?) what "AVM" stands for?
Thanks.
"I reviewed several hundred [subprime] loans recently for our wholesale division," said Allen Hardester, regional director of development for mortgage-broker, Guaranteed Rate, "and all of them, with one exception, qualified for a prime-rate loan."
While it may be true that many of the borrowers alluded to by Mr. Hardester may have qualified for a "Prime Rate Loan" (whatever that means) he fails to mention that they may have qualified at a lower level approval. In cases like this the rates are much higher and PMI insurance is required adding more to the cost of the loan.
Often times clients can have a lower payment by going with a Subprime product.
While the brokers are certainly responsible for some of the problems here the wholesalers and CDO issuers need to look into the mirror too. Everyone was happy when they were making fat fees upfront now that the party is over and there is a big mess to clean up someone must be blamed. So let's blame the mortgage brokers.
I guess builders who were making huge profits do not need to take any responsibility. Neither do real estate agents who pushed people into buying houses that they knew were over priced and were unaffordable. How about appraisers who inflated property values. How about Investors/speculators who thought that prices only went up.
Plenty of blame to go around, unfortunately, we are not seeing many solutions.
As is the case all to often the people who can least afford it will suffer the most. We will focus on the news of a roaring stock market and watch the Rich get Richer.
See some evidence of the growing income gaps as posted on the CR sidebar
The Street Light: Income Inequality: International Comparisons
The state of journalism, at least the cable and network type, have fallen into to the he said/she said type of reporting for quite some time. It's easy, and you can claim it's balanced. The truth doesn't matter, as long as you get both sides! See, you can have a liar giving his/her story, and the opposition telling the truth. But, it's not the stenographer's job to point out the lies. That would show bias.
Curious, I'm sorry. "AVM" is "automated valuation model." It is, in essence, a big database of home price information.
True brave souls use an AVM in place of an appraisal prepared by an appraiser. Most of us in the industry think that's nuts, unless the loan in question is a simple no-cash-out refi of a loan with at least a 24-month payment history. In that special case, a full appraisal would be a waste of time and money and an AVM is a perfectly fine way of coming up with a number to calculate current LTV.
Everyone who isn't nuts uses AVMs to check the plausibility of an appraisal, not to replace them. Fannie and Freddie generally use the "internal AVM" in their automated underwriting systems to decide what level of appraisal a loan will require. If the AVM comes up with a number that would result in a fairly conservative LTV, then often the loan only requires a "short form" appraisal (the appraiser can do a "drive by" inspection of the exterior of the property, without having to go inside for a full interior inspection). So the AVM can be used not just to verify an appraisal's credibility, but to save people some money.
The killer in the current context is that the GSE systems have an "internal" AVM. If you are a mortgage broker, you can run a property address through any AVM you subsribe to--there are many, and one of the best-performing is the Case-Shiller model, by the same folks who publish the house price index. If you run a loan through a GSE AUS, it runs its own "AVM" internally, whether you "ask it to" or not. So you have a broker who doesn't seem to understand that. And that is mind-blowing.
What this tells me is the high relative level of defaults in subprime aren't due to the credit risks of the borrowers. It's the type of loans they took out. I think the subprime problem is really an ARM problem.
Denzel, you are so right. I will only observe that while our stenographers do not seem capable of taking a stab at deciding who's telling the truth, they don't seem to have any inhibition about saying "the consumer is to blame." In other words, the "buyer beware" cliche meets up with the factual claim "balanced" by self-serving spin problem, and you get a reporter who is too big a cowardly dolt to opine about whether the MBA might be full of it, but perfectly willing to opine that you and I are too stupid for our own good. It's not about being unable to apportion blame; it seems to me it's about finding the least powerful parties to whom we can apportion blame.
What this tells me is the high relative level of defaults in subprime aren't due to the credit risks of the borrowers. It's the type of loans they took out. I think the subprime problem is really an ARM problem.
charlie, that's important to bear in mind, but I think you could hypothesize something else here. Namely, if there weren't all those prime borrowers steered into subprime, the default rate would probably be 28% today, not 14%. In other words, it is quite possible that the subprime industry "kept its numbers up" by steering enough prime borrowers into the subprime category.
I have been convinced for quite a while now that there just aren't enough true subprime borrowers left to keep the subprime industry running at its "capacity." That suggests the presence of a giant moral hazard if there is nothing to prevent prime borrowers being put into subprime loans.
This is where uninformed "reporting" and blogging amateurism meets hard reality.
There is no doubt most sub prime loans would have Never qualified for prime financing.
If you just factor stated income as the lone control, that would eliminate 50% of all sub prime financing from qualifying.
Makes for a good news story and luke warm blogging, but it is a myth.
There is no doubt most sub prime loans would have Never qualified for prime financing.
If you just factor stated income as the lone control, that would eliminate 50% of all sub prime financing from qualifying.
Producer, you never quit, do you? There is plenty of "doubt," bubba.
Are you seriously suggesting that there is no prime stated income?
Are you seriously suggesting that there is no prime stated income?
No, there is not. Only a few big banks can offer true stated income on Agency paper by way of negotiated waivers and those programs do not allow the layered risk typical of subprime much less the scores and recent mortgage and consumer delinquency that is typical of sub prime. I won't even get into seasoning and cash out issues on stated incone which would by themselves would preclude most loans for qualifying. Also, there is the issue of MI which would thwart anything over 80% ltv.
"have been convinced for quite a while now that there just aren't enough true subprime borrowers left to keep the subprime industry running at its "capacity." That suggests the presence of a giant moral hazard if there is nothing to prevent prime borrowers being put into subprime loans."
Not sure what convinced you since you obviously have no practical knowlege of this.
I can tell you there is a swarm of borrowers out there with credit south of prime that would love to get a loan right now. No, sub prime borrowers will always be there in great numbers...
No, there is not. Only a few big banks can offer true stated income on Agency paper by way of negotiated waivers and those programs do not allow the layered risk typical of subprime much less the scores and recent mortgage and consumer delinquency that is typical of sub prime. I won't even get into seasoning and cash out issues on stated incone which would by themselves would preclude most loans for qualifying. Also, there is the issue of MI which would thwart anything over 80% ltv.
Oh, I see. First you claim that stated income can be the single control variable putting a borrower in subprime, and now you want to bring up every other relevant and irrelevant variable.
Where to start? "Prime" is not identical with "Agency." Insofar as it is, the "agencies" themselves are claiming these loans would qualify under their rules.
Further, why are these borrowers taking stated income? If the income is real, they're paying 200-300 bps for stated income subprime instead of 25-50 bps for a "Fast and Easy" from Countrywide or coughing up a W-2 and getting no cost for it.
Finally, have you never heard of this "Alt-A" thingy? You seem to be suggesting that anyone, say, who wants to do a piggyback instead of paying MI should go subprime. That is beyond ridiculous.
"Eleventy Jillion", I love that number. gonna play it in MegaMillions.
Tanta,
Been reading awhile but first post. I tend to agree that many subprime deals could have gone prime. But estimates ranging from 15-50% probably means no one really knows for sure.
Lenders with OCC/Fed oversight are required to do a "Net Tangible Benefit" on all sub-prime deals. That includes running DU to see if it gets approved. Any DU approved deal that stays subprime needs additional approvals, which Sr Mgrs are reluctant to give since the auditors routinely review the deals and those approving them.
Also, before the law changed, elimination of PMI was a NTB. Today, not so sure that could be construed as true since it is now tax deductable.
So, couple of thoughts: 1) all subprime lenders need to do a NTB to ensure the borrower is getting something for the fees, and 2) PMI companies might want to think about offering PMI to subprime lenders at rates that are reasonable.
tomatoes are a fruit
Prime is identical to Agency, if it's not Agency/prime than it's Alt A or Sub prime. Any mortgage neophyte knows that.
"Further, why are these borrowers taking stated income? If the income is real, they're paying 200-300 bps for stated income subprime instead of 25-50 bps for a "Fast and Easy" from Countrywide or coughing up a W-2 and getting no cost for it."
There you go making my point for me, they need to stated income, they cannot go full doc and Fast and Easy has stringent standards and documentation that cannot be met by most sub prime borrowers.
Sub prime loans made in the last 5 years rarely would have been approved by DU or LP.
Alt A is not prime financing.
Interesting presentation on MBS
http://www.designs.valueinvestorinsight.com/bonus/pdf/IraSohnFinal.pdf
V8 was one of of Howard Hughes' favorite drinks, as long as it was "fresh."
Tanta - Where did you go? Did the nausea come back???? Do you just have to kind of wait until it goes away?
Rest is good.
But when you're up to snuff again --
The blog just isn't the same with these boring numbers getting flung everywhere and no WIT to even things out!
Hope you're feeling better soon...
Love your site and agree many lenders were looking out for themselves and not the best interest of their customers.
However, do you really believe, Tanta, that a consumer making the biggest purchase of his life can't spend an hour or two to get a couple of quotes on a mortgage interest rate? They bear no responsibility for taking on a subprime loan when they could have qualified for a much lower rate?
Bravo, Tanta.