"As I have argued before, we as an industry have known how to prevent a lot of fraud for a long time; we just didn't do it. It costs too much, and too many bonuses were at stake to carve out the percent of loan production it would take to get a handle on fraud. The only thing that got anybody's attention, finally, was a flood of repurchase demands on radioactive EPD loans and other violations of reps and warranties."
Like I've said, if you want to know where the value of your savings went relative to home prices in the past 5 years, then you need look no farther then the nearest parking lot of a subprime lender in SoCal. Lots MBZs and BMWs there and that's wher the money that should have been used for enforcing best practices for mortgage lending...straight into the $10K set of rims on that Mortgage Brokers 760i. nice huh?
The whole coverup makes me sick. NFI and LEND should of been out months ago. Do they really have any value.
The Bull looks a little weird trying to run on 3 legs.
CDO's??? S&P will never figure out what's in them. Tony Soprano and his gang were packaging these deals in between the lap dances at the Bada Bing.....
It sort of reminds me of a time, last year, when a doctor was poking around on my tummy and I let out a yelp and the doctor said, "how long has it been tender right there?" and I said "how often do you think I let people poke me like that, dude? I have no idea how long it's been tender."
So one should just ask the question- now that the ratings are trash who the heck is going to buy anything that might break par value?
This has gone beyond any bit of reason and descended into a kind of madness. Yes, there will be a bunch of foreclosures, a bunch of mods, and I don't think that a realistic market price has been found that will allow anything other than agency backed bonds to be sold anymore.
Quite frankly, if housing prices do decline that 8 percent, a tremendous amount of loans will be underwater, and the people who owe the money may or may not decide to tap that 401k to pay their lender. I wouldn't. Screw my credit and my lender, I am keeping the pennies I have saved for retirement. I can always buy another house- and in some cases it is taking several weeks to begin eviction proceedings after the foreclosure.
This will get worse, much worse, as people who never should have bought are broken out on both sides of the market- tranche buyers and nodoc borrowers.
that's a cynical view of MBS investors; u think even given what's happened to subprime they'll be comforted by something that's labeled Alt-A and STILL not look at the collateral? u must think even less of these people than i do.
i also suspect s&p knew their rating were trash months ago but didn't know how to fix it, which is why it took them so long to downgrade. they had to have something quantitative to give to people.
the big alt-a lenders all claim they will not and are not originating those subprime-ish Alt-B/C loans anymore. where is the volume coming from? what product-type are the loans (surely not 2/28s, maybe 7/1s or 10/1s)? also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
when do u think the alt-a criteria revision will come???
Alt-A is the SAME as subprime, only the fuse is longer.
The problem here are the appraisals, the stated income, the low teaser rates, etc.
Alt-A has them all.
The fact that 80% or more of Alt-A borrowers are negatively amortizing (paying just the minimum), and more than 60% of stated income borrowers overstate their income meaningfully is all the proof one needs to know Alt-A is a ticking time bomb (as opposed to Subprime, which already blew up).
Someone should write a book on all the wordsmithing that goes on in business.
As Dad used to say "They're selling oats, but not telling you the oats have already been through the horse."
OT. Love your posts, Tanta. Have you done or would you do one on the motgage insurers (MGIC, Radian, MBIA, etc.) and the use of wraps and the like in the securitization market? I'm sure they are on the hook for way more than they can handle, but it would be interesting to know how that filters through. I would love to hear your take on that industry.
Incognitus is right.and Investors are spooked with good reason.It will be impossible to refi a lot of homes in california.CR has discussed the misallocation of housing stock by location and type and the affect of this is beginning to show already in places like placer county(median dow 29%,yoy)I talked to a friend yesterday that does hard money loans,18% anyone? it was 12% 6 weeks ago.
""Investors are spooked over anything called "subprime," but still not spooked enough to do much due diligence on these deals, so you can easily get a situation in which shaky deals just migrate into the less-demonized category."
But this just confirms what I've been talking about for months - the stuff that is selling out there today at still ridiculously inflated prices is just sowing the seeds for a protracted downturn. As long as prices keep trickling downward (reverse voodoo economics for housing) we'll continue to realize through the REO process that the market isn't hitting bottom until people can actually afford what they are buying, and that sure isn't anywhere close to the case yet.
u'd expect in the current environment that even if there are still poorly underwritten loans going out to B and C borrowers, they're at least going into safer product types, yeah?
From the WSJ. This gives a very good description of how stockmarket rallies become self-reinforcing by "artificially" pumping up corporate earnings (the effect, of course, works in reverse too). This article is about China, but the same thing applies to what's been happening in the US recently with the buybacks and M&As pumping up the stockmarket, and in turn, corporate profits:
Many companies are increasingly dependent on investment gains for profits. According to estimates by Goldman Sachs and Wind Information Corp., a Shanghai-based financial-data provider, gains on investments, including stocks, contributed 23% of overall profit at listed, nonfinancial companies in the first quarter of 2007. That was up from 13% in the previous quarter...
"It's an unfortunate diversion from their core business," says Michael Kurtz, Asia strategist for Bear Stearns. "What we see is Chinese companies who have some available cash on the balance sheet deciding they can get a better return on that money by investing in the stock market rather than plowing it back into the business or returning it to shareholders."
For now, corporate investment gains are helping to propel China's market upward: As stock prices rise, companies that turn investment profits on their stocks are reporting better earnings. That gives investors confidence to bid stock prices even higher. But the scenario could easily play out in reverse. A drop in the market could feed through into reduced company profits, which would then put added downward pressure on stock prices, further hurting the bottom lines.
This virtuous circle -- where investment gains lead to higher profits, which spur the market even higher -- is similar to what happened during the tech-stock bubble, when companies such as Intel Corp. and Chase Manhattan Bank, now J.P. Morgan Chase, reported higher earnings because of gains on their investments. Of course, those gains turned to losses after the market turned south.
alt-a lenders are ALREADY having serious EPD problems, i don't understand why they wouldn't have tightened standards to really crack down on fraud. r they just dying to go BK so they can start new companies???
It's almost EASY for anyone to keep servicing an Alt-A loan for years, they're mostly Option ARMs that don't even cover the interest expense for years.
This makes things appear much, much, better than they really are.
also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
I can't give you deals, but this is from some preliminary UBS numbers (preliminary insofar as it comes from LoanPerformance, which for various reasons lags a bit on new deals):
also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
I can't give you deals, but this is from some preliminary UBS numbers (preliminary insofar as it comes from LoanPerformance, which for various reasons lags a bit on new deals):
Alt-A Hybrid pools Q406 Q107
WACLTV 84 86
CLTV less than 80 53 58
CLTV less than 90 36 45
Second lien 49 55
WAFICO 711 707
FICO less than 700 43 48
FICO less than 660 14 17
Full Doc 16 15
Jumbo 63 70
IO 79 89
(All percent except WAFICO)
That sure doesn't look like tightening. It's quite possibly just shoving all the leftovers from 2006 into the last pools, of course, so we'll have to see what the Q207 numbers look like.
Do I think investors will still buy nearly anything with a FICO over 700? Yes, I do. I hope I'm wrong.
Tanta,
I hate to sound like a vulture, but where does a forensic auditor and his merry band of nerds go to make some money off this?
(gotta fund that 529 plan)
Tanta, but everyone already knew 1Q07 was shit. i though you (or ubs) were talking about RECENT deals, like still coming to market. the 1Q07 that's old news. thanks for the data point though, it is nice.
lama, you'd think they'd be falling all over themselves to hire folks like you and me right about now, wouldn't you?
I'll believe in stronger due diligence practices when I start hearing that due diligence analysts and auditors are getting paid as much as the salesmen . . .
Well, actually, I am talking about recent deals, but the good numbers on them won't be available until LP catches up with quarterly reports. What I am hearing from at least one trading desk suggests that Q2 isn't going to look that different from Q1. We already know that Q2 Alt-A volume is up at least slightly from Q1.
A consumer-spending slowdown, underscored Tuesday by hefty earnings warnings from two major retailers, is likely to be revealed Thursday when the nation's largest retailers turn in June sales results. Analysts are nearly universal in their assessment that June's numbers will be weak and disappointing...
"June results sound like they're tracking on the lower end of expectations on the heels of a lackluster May," according to Goldman Sachs analyst Adrianne Shapira.
alt-a lenders are ALREADY having serious EPD problems, i don't understand why they wouldn't have tightened standards to really crack down on fraud. r they just dying to go BK so they can start new companies???
Its all about commissions, fees & bonuses. As long as the folks running the company & setting 'policy' are making money today from this activity they probably don't give a lot of extra thought as to what happens tomorrow.
I had a really savvy sales manager I reported to once tell me (after having just come from a bankrupt company)...
"Never let the people who get commissions, bonuses or direct fees from specific contracts EVER set prices or terms... Any company that lets that happen will soon find they are winning every contract and losing money on each and everyone of them."
Every company needs to have somebody as the internal cop. That person can't have his/her pay tied directly to sale performance in anyway. They need to be paid a fixed salary with the mission of guarding the long term safety & success of the organization. If everyone is on sales performance bonus or commission... including upper management... then the system gets corrupt pretty damned fast. Even the cops get caught up in it (or are so marginalized as to be made ineffective).
Individual commissions sky rocket and company losses mount - I've seen it a million times.
And this is as true in mfg, retail, health care, education, etc. and is not just a problem for the financial services industries... its a universal.
yes, bacon dreamz, but "the great tightening" in Q107 (which would have affected loans going into Q2 issues) was from the guidelines in effect in Q107. So if the Q1 issues were that much worse than Q406, what do you think Q207 will look like? Back to the levels of Q406? Better than that? How are these people keeping up issuance volume while improving credit quality of these loans, if more and more of the conforming balance ones are going agency?
well 1Q07 guidelines didn't go into effect on jan1 right? i thought that even the lenders would admit that they didn't change guidelines until late Feb/early March, so maybe pre-guideline change production is still in some 2Q deals. i still don't comprehend why they would loosen standards when they're facing huge epds, but i believe the companies would tell u it's all 3/1 and 5/1 refis that's driving volume and maybe some 2/28s that can manage it. maybe not true we will see. u clearly know better than me so if u believe they would do this u are probably right...
p.s. how does LP get CLTV when it's often not in the prospectus?
bacon dreamz, I'm not suggesting that they've loosened standards. I'm suggesting that loans that had been going into subprime pools can still get made, because at least some of them still meet the (tightened) Alt-A standards. That suggests there has been tightening, but not enough.
Surely they aren't putting significant numbers of 2/28s into Alt-A pools. That product is (thankfully) dying. My concern is that they have borrowers they used to put into a 2/28 and are now squeezing into a 3/1 or 5/1 and calling it "Alt." Maybe it is Alt, maybe it is subprime called Alt. In any case I don't think it has to be a 2/28 to be considered subprime. Is that what we're apparently disagreeing on?
I come at this from the perspective that there was a hell of lot of tightening to do in Alt-A, so take that into account. I'm not claiming there was no tightening going on.
Our CDS desk yesterday at 2:15 PM started to
get taken on a bunch of protection in the financial guarantee names.
Will send a piece later today from financial traders on all of
this......
I suppose the Alt-A question is: How long will buyers with good credit continue to pay underwater on 100% loans? At what point does default/rent/rebuy at new market values make more sense than paying down top of the market resets on falling equity?
ok now i understand i thought u were suggesting that there was in reality no tightening going on at all. if a person who used to be put in a 2/28 is now squeezed into a 5/1 or 7/1 or whatever, and it meets the new "standards" though, it shouldn't be a piggyback and it should be verified income, right? and maybe even qualified at the fully indexed rate! plus the borrower at least has some more time to pray for HPA before the reset.
um, alt-a whole loan prices would not do well on speculation that alt-a criteria will change imminently. also, one of the deals they retained the resid on is on s&p's naughty list.
Christ on a raft, what's going on with AHM today?"
In addition to comments above, they issued a "death spiral" convert last week (the lower the stock price, the higher the dilution). This gives free rein to anyone who wants to short, because you push down the price which means more dilution which pushes down the price ad infinitum.
Only the incompetent or the truly desperate issue these.
Ok then. It's because those heartwarming and perspicacious lenders are putting those stated income neg-ams into their healthy and scintillating portfolios where they do not have to be marked to freedom and justice. For now.
didn't ubs put out something a while ago that extrapolated performance of 2000 vintage alt-a hybrids onto 2006 vintage and conclude that the entire support to BBBs would be wiped out? and didn't s&p say u can't extrapolate 2000 because of the unreliable data due to fraud, noting that 2006 is performing worse than 2000 for subprime? Doesn't this suggest if the same holds true for alt-a, it will be even worse than wiping out everything below the BBB???
Chapeau tip to Mark McQueen at Wellington Capital up north:
"Youve got to be a rosy credit analyst to think that a lending firm can go bankrupt due to issues with their loan customers and funders, but that loans provided by the defunct firm arent worth a review (see our post Sub prime market not so sublime, March 12-07) around the time of the lenders own tipping point.
The bonds downgraded (or placed under review) by Standard & Poors include three that were previously rated AA, and 88 that were formerly in the A category. More scary for the pension fund crowd are the 366 that were formerly BBB-rated, which in many cases means that the bond in question is no longer investment grade if it is dropped two notches (from BBB to BBB minus to BB+). This will ensure that some funds might be forced to sell, by the terms of their investment policy, these formerly BBB-rated bonds once they slide to sub-investment grade status."
Christ on a raft, what's going on with AHM today?"
According to AP early this am, AHM may be in the process of secretly dumping up to 20% of their workforce.
They also announced this am they are sponsoring Tom Ferry's TAG (The Appointment Game) seminars for lucky broker customers. I guess this is kind of like Zig Zigler stuff.
Somehow, I don't think Tom Ferry or Zig Zigler is going to be able to help them.
Tanta, my earlier confusion was caused by this statement:
I think there's undoubtedly some truth in this, but it seems questionable to me that the addition of "steered" loans into the Alt-A pipeline should more than compensate for the loss of production due to guideline tightening within Alt-A.
i thought u were suggesting guideline tightening wasn't really real. u can't confuse me like this. here's an indymac deal from late april (at issuance, these are 5/1s):
WACLTV 91
WALA 1
DTI 40
Second lien 0
WAFICO 708
FICO less than 700 42
FICO less than 660 11
Full Doc 10
Owner occ 90
Purchase 64
IO 92
i guess this would be post-guidelines given the wala...
Regarding employment/opportunities for forensic accountants/auditors.
1) Most, if not all, ethical auditors were driven from the mortgage lending industry 3-5 years ago so there won't be much competition.
2) There is an opportunity for a firm with mortgage lending expertise to approach pension funds such as CALPRS, and other large investors who have significant exposure to CDOs, etc. Offer to review the deal contracts and then loan files for loans that do not meet "reps and warranties". There should be many. Good luck.
Loved the remarks on the fraud questionaire. Back when I did auditing in the S+L industry, I used to joke that the people who scared me were the ones who didn't know how to lie on the questionaire. They obviously would not have a clue about any internal controls.
Also loved the quotes from S+P yesterday about the data quality. Someone surely burnt midnight oil putting the shine on that pile of sh*t!
"As I have argued before, we as an industry have known how to prevent a lot of fraud for a long time; we just didn't do it. It costs too much, and too many bonuses were at stake to carve out the percent of loan production it would take to get a handle on fraud. The only thing that got anybody's attention, finally, was a flood of repurchase demands on radioactive EPD loans and other violations of reps and warranties."
Like I've said, if you want to know where the value of your savings went relative to home prices in the past 5 years, then you need look no farther then the nearest parking lot of a subprime lender in SoCal. Lots MBZs and BMWs there and that's wher the money that should have been used for enforcing best practices for mortgage lending...straight into the $10K set of rims on that Mortgage Brokers 760i. nice huh?
The whole coverup makes me sick. NFI and LEND should of been out months ago. Do they really have any value.
The Bull looks a little weird trying to run on 3 legs.
CDO's??? S&P will never figure out what's in them. Tony Soprano and his gang were packaging these deals in between the lap dances at the Bada Bing.....
It sort of reminds me of a time, last year, when a doctor was poking around on my tummy and I let out a yelp and the doctor said, "how long has it been tender right there?" and I said "how often do you think I let people poke me like that, dude? I have no idea how long it's been tender."
So one should just ask the question- now that the ratings are trash who the heck is going to buy anything that might break par value?
This has gone beyond any bit of reason and descended into a kind of madness. Yes, there will be a bunch of foreclosures, a bunch of mods, and I don't think that a realistic market price has been found that will allow anything other than agency backed bonds to be sold anymore.
Quite frankly, if housing prices do decline that 8 percent, a tremendous amount of loans will be underwater, and the people who owe the money may or may not decide to tap that 401k to pay their lender. I wouldn't. Screw my credit and my lender, I am keeping the pennies I have saved for retirement. I can always buy another house- and in some cases it is taking several weeks to begin eviction proceedings after the foreclosure.
This will get worse, much worse, as people who never should have bought are broken out on both sides of the market- tranche buyers and nodoc borrowers.
Someday this war's gonna end...
that's a cynical view of MBS investors; u think even given what's happened to subprime they'll be comforted by something that's labeled Alt-A and STILL not look at the collateral? u must think even less of these people than i do.
i also suspect s&p knew their rating were trash months ago but didn't know how to fix it, which is why it took them so long to downgrade. they had to have something quantitative to give to people.
the big alt-a lenders all claim they will not and are not originating those subprime-ish Alt-B/C loans anymore. where is the volume coming from? what product-type are the loans (surely not 2/28s, maybe 7/1s or 10/1s)? also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
when do u think the alt-a criteria revision will come???
Alt-A is the SAME as subprime, only the fuse is longer.
The problem here are the appraisals, the stated income, the low teaser rates, etc.
Alt-A has them all.
The fact that 80% or more of Alt-A borrowers are negatively amortizing (paying just the minimum), and more than 60% of stated income borrowers overstate their income meaningfully is all the proof one needs to know Alt-A is a ticking time bomb (as opposed to Subprime, which already blew up).
The (inflated) appraisals.
You gotta love Fed-speak:
Fed's Plosser: Housing bust hasn't had 'dire consequences'
I like how they slip things like "housing bust" in their statements as if they've been talking about them all along.
What's next?
Fed's Plosser: This depression isn't that bad as far as depressions go.
Wasn't this commentary a little UberNerdy?
Someone should write a book on all the wordsmithing that goes on in business.
As Dad used to say "They're selling oats, but not telling you the oats have already been through the horse."
OT. Love your posts, Tanta. Have you done or would you do one on the motgage insurers (MGIC, Radian, MBIA, etc.) and the use of wraps and the like in the securitization market? I'm sure they are on the hook for way more than they can handle, but it would be interesting to know how that filters through. I would love to hear your take on that industry.
Incognitus is right.and Investors are spooked with good reason.It will be impossible to refi a lot of homes in california.CR has discussed the misallocation of housing stock by location and type and the affect of this is beginning to show already in places like placer county(median dow 29%,yoy)I talked to a friend yesterday that does hard money loans,18% anyone? it was 12% 6 weeks ago.
Took a while to get to it :
""Investors are spooked over anything called "subprime," but still not spooked enough to do much due diligence on these deals, so you can easily get a situation in which shaky deals just migrate into the less-demonized category."
But this just confirms what I've been talking about for months - the stuff that is selling out there today at still ridiculously inflated prices is just sowing the seeds for a protracted downturn. As long as prices keep trickling downward (reverse voodoo economics for housing) we'll continue to realize through the REO process that the market isn't hitting bottom until people can actually afford what they are buying, and that sure isn't anywhere close to the case yet.
So much ugliness ahead...
u'd expect in the current environment that even if there are still poorly underwritten loans going out to B and C borrowers, they're at least going into safer product types, yeah?
From the WSJ. This gives a very good description of how stockmarket rallies become self-reinforcing by "artificially" pumping up corporate earnings (the effect, of course, works in reverse too). This article is about China, but the same thing applies to what's been happening in the US recently with the buybacks and M&As pumping up the stockmarket, and in turn, corporate profits:
Many companies are increasingly dependent on investment gains for profits. According to estimates by Goldman Sachs and Wind Information Corp., a Shanghai-based financial-data provider, gains on investments, including stocks, contributed 23% of overall profit at listed, nonfinancial companies in the first quarter of 2007. That was up from 13% in the previous quarter...
"It's an unfortunate diversion from their core business," says Michael Kurtz, Asia strategist for Bear Stearns. "What we see is Chinese companies who have some available cash on the balance sheet deciding they can get a better return on that money by investing in the stock market rather than plowing it back into the business or returning it to shareholders."
For now, corporate investment gains are helping to propel China's market upward: As stock prices rise, companies that turn investment profits on their stocks are reporting better earnings. That gives investors confidence to bid stock prices even higher. But the scenario could easily play out in reverse. A drop in the market could feed through into reduced company profits, which would then put added downward pressure on stock prices, further hurting the bottom lines.
This virtuous circle -- where investment gains lead to higher profits, which spur the market even higher -- is similar to what happened during the tech-stock bubble, when companies such as Intel Corp. and Chase Manhattan Bank, now J.P. Morgan Chase, reported higher earnings because of gains on their investments. Of course, those gains turned to losses after the market turned south.
China Inc. Runs the Bulls - WSJ.com
alt-a lenders are ALREADY having serious EPD problems, i don't understand why they wouldn't have tightened standards to really crack down on fraud. r they just dying to go BK so they can start new companies???
Alt-A muddles things a lot more than subprime.
It's almost EASY for anyone to keep servicing an Alt-A loan for years, they're mostly Option ARMs that don't even cover the interest expense for years.
This makes things appear much, much, better than they really are.
also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
I can't give you deals, but this is from some preliminary UBS numbers (preliminary insofar as it comes from LoanPerformance, which for various reasons lags a bit on new deals):
Alt-A Hybrid pools Q406 Q107
WACLTV 84 86
CLTV>80 53 58
CLTV>90 36 45
Second lien 49 55
WAFICO 711 707
FICO
I've been haloed!
Let me try again:
also, can u please point me to one of these alt-a deals with worse credit quality than 2006?
I can't give you deals, but this is from some preliminary UBS numbers (preliminary insofar as it comes from LoanPerformance, which for various reasons lags a bit on new deals):
Alt-A Hybrid pools Q406 Q107
WACLTV 84 86
CLTV less than 80 53 58
CLTV less than 90 36 45
Second lien 49 55
WAFICO 711 707
FICO less than 700 43 48
FICO less than 660 14 17
Full Doc 16 15
Jumbo 63 70
IO 79 89
(All percent except WAFICO)
That sure doesn't look like tightening. It's quite possibly just shoving all the leftovers from 2006 into the last pools, of course, so we'll have to see what the Q207 numbers look like.
Do I think investors will still buy nearly anything with a FICO over 700? Yes, I do. I hope I'm wrong.
Tanta,
I hate to sound like a vulture, but where does a forensic auditor and his merry band of nerds go to make some money off this?
(gotta fund that 529 plan)
Tanta, but everyone already knew 1Q07 was shit. i though you (or ubs) were talking about RECENT deals, like still coming to market. the 1Q07 that's old news. thanks for the data point though, it is nice.
lama, you'd think they'd be falling all over themselves to hire folks like you and me right about now, wouldn't you?
I'll believe in stronger due diligence practices when I start hearing that due diligence analysts and auditors are getting paid as much as the salesmen . . .
i think when most people refer to 2006 that includes 1Q07 in my experience. maybe sloppy but true.
Well, actually, I am talking about recent deals, but the good numbers on them won't be available until LP catches up with quarterly reports. What I am hearing from at least one trading desk suggests that Q2 isn't going to look that different from Q1. We already know that Q2 Alt-A volume is up at least slightly from Q1.
Good point about investment profits masking true company performance, ac. The economy is not as good as it seems.
MarketWatch has another gloomy article on retail sales - Gloom will overtake June's retail-sales results - MarketWatch
--
Tanta & Lama, LLC
"Taking the lipstick off pigs since 2007"
alt-a lenders are ALREADY having serious EPD problems, i don't understand why they wouldn't have tightened standards to really crack down on fraud. r they just dying to go BK so they can start new companies???
Its all about commissions, fees & bonuses. As long as the folks running the company & setting 'policy' are making money today from this activity they probably don't give a lot of extra thought as to what happens tomorrow.
I had a really savvy sales manager I reported to once tell me (after having just come from a bankrupt company)...
"Never let the people who get commissions, bonuses or direct fees from specific contracts EVER set prices or terms... Any company that lets that happen will soon find they are winning every contract and losing money on each and everyone of them."
Every company needs to have somebody as the internal cop. That person can't have his/her pay tied directly to sale performance in anyway. They need to be paid a fixed salary with the mission of guarding the long term safety & success of the organization. If everyone is on sales performance bonus or commission... including upper management... then the system gets corrupt pretty damned fast. Even the cops get caught up in it (or are so marginalized as to be made ineffective).
Individual commissions sky rocket and company losses mount - I've seen it a million times.
And this is as true in mfg, retail, health care, education, etc. and is not just a problem for the financial services industries... its a universal.
yes, bacon dreamz, but "the great tightening" in Q107 (which would have affected loans going into Q2 issues) was from the guidelines in effect in Q107. So if the Q1 issues were that much worse than Q406, what do you think Q207 will look like? Back to the levels of Q406? Better than that? How are these people keeping up issuance volume while improving credit quality of these loans, if more and more of the conforming balance ones are going agency?
Not that the NAR has any credibility left but here is their forcast.
U.S. Homebuilding Slump Will Last Through Next Year (Update2) - Bloomberg.com
SEC Asserts Authority to Sue Hedge Funds, Responding to Ruling
SEC Asserts Authority to Sue Hedge Funds for Fraud (Update2) - Bloomberg.com
excellent tanta-like read.
404 Not Found
LBO Credit Quality Falls to Lowest in Nine Months
LBO Credit Quality Falls to Lowest in Nine Months (Update2) - Bloomberg.com
Bear Stearns Can Unwind Funds in `Orderly Fashion,' SEC Says
Bear Can Unwind Funds in `Orderly Fashion,' SEC Says (Update3) - Bloomberg.com
Lots on Bloomberg this morning. What surprises me is how stocks only go up.
well 1Q07 guidelines didn't go into effect on jan1 right? i thought that even the lenders would admit that they didn't change guidelines until late Feb/early March, so maybe pre-guideline change production is still in some 2Q deals. i still don't comprehend why they would loosen standards when they're facing huge epds, but i believe the companies would tell u it's all 3/1 and 5/1 refis that's driving volume and maybe some 2/28s that can manage it. maybe not true we will see. u clearly know better than me so if u believe they would do this u are probably right...
p.s. how does LP get CLTV when it's often not in the prospectus?
bacon dreamz, I'm not suggesting that they've loosened standards. I'm suggesting that loans that had been going into subprime pools can still get made, because at least some of them still meet the (tightened) Alt-A standards. That suggests there has been tightening, but not enough.
Surely they aren't putting significant numbers of 2/28s into Alt-A pools. That product is (thankfully) dying. My concern is that they have borrowers they used to put into a 2/28 and are now squeezing into a 3/1 or 5/1 and calling it "Alt." Maybe it is Alt, maybe it is subprime called Alt. In any case I don't think it has to be a 2/28 to be considered subprime. Is that what we're apparently disagreeing on?
I come at this from the perspective that there was a hell of lot of tightening to do in Alt-A, so take that into account. I'm not claiming there was no tightening going on.
How does LP get information that isn't on the prospectus? LP requires it, the prospectus readers have (until recently, at least) not required it.
Our CDS desk yesterday at 2:15 PM started to
get taken on a bunch of protection in the financial guarantee names.
Will send a piece later today from financial traders on all of
this......
yes prospectus readers are stoopid.
Christ on a raft, what's going on with AHM today?
I suppose the Alt-A question is: How long will buyers with good credit continue to pay underwater on 100% loans? At what point does default/rent/rebuy at new market values make more sense than paying down top of the market resets on falling equity?
Lots on Bloomberg this morning. What surprises me is how stocks only go up.
Ministry of Truth | Homepage | 07.11.07 - 12:05 pm | #
ok, so imagine how much funny moey goes to support subprime....
Now guess as to the amount dedicated to volatility and variance swaps...
ltcm in 98 had 1.3 billion on those trades, 9 years ago....
think COLLARED.. with still an upside bias
ok now i understand i thought u were suggesting that there was in reality no tightening going on at all. if a person who used to be put in a 2/28 is now squeezed into a 5/1 or 7/1 or whatever, and it meets the new "standards" though, it shouldn't be a piggyback and it should be verified income, right? and maybe even qualified at the fully indexed rate! plus the borrower at least has some more time to pray for HPA before the reset.
Christ on a raft, what's going on with AHM today?
um, alt-a whole loan prices would not do well on speculation that alt-a criteria will change imminently. also, one of the deals they retained the resid on is on s&p's naughty list.
did u notice that some people who call themselves high quality alt-a are on S&P's subprime or high risk list?
I did indeed notice that.
There were also some "respectable" names on the Moody's shit list, I believe.
Christ on a raft, what's going on with AHM today?"
In addition to comments above, they issued a "death spiral" convert last week (the lower the stock price, the higher the dilution). This gives free rein to anyone who wants to short, because you push down the price which means more dilution which pushes down the price ad infinitum.
Only the incompetent or the truly desperate issue these.
if people suspect ahm could have any sort of liquidity problem the dividend would go bye-bye...
"Christ on a raft, what's going on with AHM today?"
Sebastian Financial Advisors upgraded to Strong Buy after trading last night.
Tanta,
A simple question:
why is stated neg-am still underwritten in southern California?
Please keep your response free of expletives.
Please keep your response free of expletives
Ok then. It's because those heartwarming and perspicacious lenders are putting those stated income neg-ams into their healthy and scintillating portfolios where they do not have to be marked to freedom and justice. For now.
OK, OK, I prefer the expletives!
OK, OK, I prefer the expletives!
LOL. Besides David... if you were on a raft, wouldn't YOU want JC by your side?
My guess is the folks at AHM are hoping he's nearby... and if anyone's out on a raft, it be them.
What surprises me is how stocks only go up.
C'mon, the PPT is clearly printing and buying, printing and buying.
Quite a job they have. Too bad it's immoral and criminal.
["Christ on a raft, what's going on with AHM today?"
Sebastian Financial Advisors upgraded to Strong Buy after trading last night.]
LMFAO!
OT - Cramer just said short the HBs. Time to cover?
OT - Cramer just said short the HBs. Time to cover?
What's the Cramer Lag - 48hrs? You got 'til Friday.
didn't ubs put out something a while ago that extrapolated performance of 2000 vintage alt-a hybrids onto 2006 vintage and conclude that the entire support to BBBs would be wiped out? and didn't s&p say u can't extrapolate 2000 because of the unreliable data due to fraud, noting that 2006 is performing worse than 2000 for subprime? Doesn't this suggest if the same holds true for alt-a, it will be even worse than wiping out everything below the BBB???
Regulators: No Bear Stearns contagion
Yeah, uh-huh.
sorry BBB-, but they only assumed 15% severity.
Chapeau tip to Mark McQueen at Wellington Capital up north:
"Youve got to be a rosy credit analyst to think that a lending firm can go bankrupt due to issues with their loan customers and funders, but that loans provided by the defunct firm arent worth a review (see our post Sub prime market not so sublime, March 12-07) around the time of the lenders own tipping point.
The bonds downgraded (or placed under review) by Standard & Poors include three that were previously rated AA, and 88 that were formerly in the A category. More scary for the pension fund crowd are the 366 that were formerly BBB-rated, which in many cases means that the bond in question is no longer investment grade if it is dropped two notches (from BBB to BBB minus to BB+). This will ensure that some funds might be forced to sell, by the terms of their investment policy, these formerly BBB-rated bonds once they slide to sub-investment grade status."
Quite a job they have. Too bad it's immoral and criminal.
I wonder if they are accepting resumes? With all the layoffs in sub-prime there's gotta be lotsa qualified help out there.
Christ on a raft, what's going on with AHM today?"
According to AP early this am, AHM may be in the process of secretly dumping up to 20% of their workforce.
They also announced this am they are sponsoring Tom Ferry's TAG (The Appointment Game) seminars for lucky broker customers. I guess this is kind of like Zig Zigler stuff.
Somehow, I don't think Tom Ferry or Zig Zigler is going to be able to help them.
Tanta, my earlier confusion was caused by this statement:
I think there's undoubtedly some truth in this, but it seems questionable to me that the addition of "steered" loans into the Alt-A pipeline should more than compensate for the loss of production due to guideline tightening within Alt-A.
i thought u were suggesting guideline tightening wasn't really real. u can't confuse me like this. here's an indymac deal from late april (at issuance, these are 5/1s):
WACLTV 91
WALA 1
DTI 40
Second lien 0
WAFICO 708
FICO less than 700 42
FICO less than 660 11
Full Doc 10
Owner occ 90
Purchase 64
IO 92
i guess this would be post-guidelines given the wala...
It never ceases to amaze ... "Full Doc 10%", "IO 92%" ...
How do people expect this sheet to perform?
Seems to me a lot of people are thinking of never paying their mortgages (hence all this demand for IO, Option ARM, etc).
It's kinda smart if one could pull it off, almost the same as getting free money.
With all the layoffs in sub-prime there's gotta be lotsa qualified help out there.
With Brad Morrice as a reference, those slime could get multiple offers: The US Treasury, Bear Stearns, Blackstone, Carlysle, KKR...
Wow, all that in one sentence, sorry about that. Now I have to clean my keyboard.
Seems to me a lot of people are thinking of never paying their mortgages (hence all this demand for IO, Option ARM, etc).
It's kinda smart if one could pull it off, almost the same as getting free money.
Incognitus
Didn't you know? Housing prices only go up!
dotcommunist, this is something different. It's beyond speculating on prices going up.
It's the belief that if you rollover your debt and always use IO/Option ARM, you'd NEVER pay principal.
One other thing, the SLM buyout seems to be hitting the rocks.
Just saw on the wire, ahm apparently has laid off hundreds of people without notice this month.
Tanta,
Did he then rephrase his question "When was the last time you got poked?"
larna,
Regarding employment/opportunities for forensic accountants/auditors.
1) Most, if not all, ethical auditors were driven from the mortgage lending industry 3-5 years ago so there won't be much competition.
2) There is an opportunity for a firm with mortgage lending expertise to approach pension funds such as CALPRS, and other large investors who have significant exposure to CDOs, etc. Offer to review the deal contracts and then loan files for loans that do not meet "reps and warranties". There should be many. Good luck.
Loved the remarks on the fraud questionaire. Back when I did auditing in the S+L industry, I used to joke that the people who scared me were the ones who didn't know how to lie on the questionaire. They obviously would not have a clue about any internal controls.
Also loved the quotes from S+P yesterday about the data quality. Someone surely burnt midnight oil putting the shine on that pile of sh*t!