Indymac to Make `Major Changes' to Mortgage Lending After Slump
By Jody Shenn and Bradley Keoun
Aug. 2 (Bloomberg) -- IndyMac Bancorp Inc. is making ``very major changes'' to its lending standards and may raise interest rates it offers on home loans because of a slump in mortgage securities, according to an e-mail to employees.
The market for mortgage bonds has become ``very panicked and illiquid,'' Chief Executive Officer Michael Perry said today in an e-mail to employees that was confirmed by spokesman Grove Nichols.
``Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,'' Perry said in the e-mail.
Other mortgage lenders are taking similar steps this week, Perry wrote.
Strange that this round of credit tightening would coincide with a huge rally in the HBs, as this shuts down another enormous number of would-be buyers. Could this rally have been engineered to free up some short shares as the hedgies further build their positions, at attractive prices?
Think cancellations have been high in the past? Time to recalibrate high cancellations.
Re the Moody's warning about Alt-A, there were actually two reports, the first saying they increased loss expectations on Alt-A 10-100% and the second on option ARMs:
"The Option ARM methodology revisions are in response to the current weaker housing and mortgage markets. In addition, the updated methodology refines our credit risk analysis of different Option ARM products. The updated Option ARM methodology is expected to increase our loss estimates by up to 20% and Aaa loss estimates by 10% to 40%."
From the wording, the increase is additive for Alt-A option ARMs. DSL and FED (which is up 5% today because they announced that they've been buying shares) sold lots of SISA (ergo Alt-A) option ARMs.
The uptick today is a total head-fake. It turns out they went into the market and bought lots of shares, particularly in the last week, while the share price was falling dramatically. Real effective buy-back. If I didn't already have 32 put contracts on FED I would be buying more... I may anyways...
(I mistakenly posted this on another thread, sorry.)
On CFC, I noted that 27 seemed to be a support/resistance line dating back to Nov 03-May 04. Next stop down is 25.5 as a resistance line during the early part of that same period. If it breaks 24, then next stop down looks like 21ish.
I'm not a technical chart expert by any stretch. However, I do think that enough people (or trading computers) use the chart analysis that you can guess on some plays by looking at it.
Perry... [the private secondary market is not functioning]
Really? I think it wasn't functioning in 2004-2006. What do they do with their own customers that need to refi or default? Talk about putting salt and cyanide on your young before devouring them.
I just posted the following response to the Indymac blog linked to above (It's awaiting "moderation", seriously, that's how it's worded.) I'd be interested in your opinion.
What I posted:
have encouraged the GSEs to step in and provide additional liquidity to the secondary markets (their primary role)
I like the way you are publicly addressing these issues, but the above isnt really true. The GSEs were created to provide the means for maintaining a secondary market for conforming loans. It definitely is not to directly invest in Alt-A paper.
Many people see now that the GSEs already have too much non-prime paper, adding to it will severely damage their viability. This would be a very ill-advised bailout.
I have a question about PMI. As we all know, if you don't put 20% down, and you have to pay PMI premiums, once you build up equity past 20% you can have your PMI cancelled.
So does that happen in reverse? I mean, if you put 20% down, but your home value shrinks so that you no longer have 20% equity, are they going to sock you with PMI???
P.S. We will still originate product that cannot be sold to the GSEs just less of it and we will have to assume we retain it in portfolio (until the AAA private MBS market recovers).
That seems like a big P.S. to me!
Volume will be down, and we'll be holding all the paper no will will touch.
Kinda like saying, ..Oh by the way...there's so much poison in the food out there we'll be eating less and only the food no one else will eat. Bon Appetit!
"panicked and illiquid"?
Is the market overreacting? One person's "panicked and illiquid" is another person's "return to rationality". I don't regard it as panic to calmly refuse to touch stuff with a ten-foot pole until you know EXACTLY what it is.
Indymac and others brought this on themselves. And on us, too, unfortunately.
"I think I read on this blog that Alt-A is only 6% of the market, but definitely concentrated in a few states."
Maybe I'm way off base here, but I work at a Manhattan Beach, CA mortgage brokerage and I can tell you that 90% of the loans we originate are stated income.
This is the cream of the crop in Los Angeles and 90% are stating income. Now maybe your Alt A definition doesn't including liar loans, but mine certainly does.
And maybe Manhattan Beach is far from representative of the rest of the nation, but if we're at 90% here, I highly doubt that the nationwide avg is only 6%.
M-F, If I remember correctly, non-prime was about 33% of the mortgage market in '05 (split pretty evenly between subprime and Alt-A). I think it was even more in '06.
Maybe Tanta has the numbers (I can't find them right now).
Yal - no, if Alt-A is truly constrained, then it will force a sharp downward pricing in some of the nation's highest priced RE markets. So what is happening now will roll forward into all all classes of lending.
The other implication is that CMBX is taking just as a hard a hit, and so we can expect commercial development to take a sharp downward trend very quickly.
Okay - I am going to add to the conspiracy talk here. Maybe AAA is getting little action because the same people who are going to lose a boatload on subprime and Alt-A are working in concert to try to force more profit out of new AAAs. Especially with Congress getting involved, there's probably 50-100 billion to be squeezed out of the Feds to offset losses.
I still haven't seen much on bad AAAs out there?
I generally don't subscribe to conspiracy talk but..
Let's for a second imagine that congress authorizes the agencies the ability to purchase non-conforming loans, like $950K CA 95% LTV SISA junk. Do you suppose IMB, FED, DSL receive a get-out-of-the-black-hole-free card and unload all their waste on the agencies?
The imbreport link is scary, but the market is overreacting. Barely being able to trade AAA doesn't make a whole lot of sense.
He said "private" AAA MBS bonds.
You can get a "private" AAA MBS in two ways:
Issue a simple pass-through (not tranched) of super-dooper quality loans that have MI out the waz, plus enough bond insurance or a standby letter of credit from some AAA-rated bank to bring the CE up from "A" to AAA. There is no big line forming for these issues.
You can do tranched deals. The problem there would be that you can't sell the AAA tranche until somebody volunteers to buy the BBB tranches.
Asking the GSEs to buy what is by definition a non-GSE loan in order to save everyone from the consequences of having ignored the GSEs' credit policy for the last five years is the height of chutzpah.
It may well be the height of chutzpah, but the question is, in such a political case as this, who is calling the shots and who is taking orders. Given the current (dis)functioning of our government, you can't put any ridiculous notion out of the realm of possibility.
Prices of some subprime securities rated AAA and AA are now disproportionate to the underlying risk and are primarily liquidity-driven,'' Prudential Vice Chairman John Strangfeld said on a conference call with analysts today.As a consequence, we see selective opportunities to take advantage of that.''
"Three transactions MBIA insured for Calabasas, California- based Countrywide Financial Corp. have hit so-called triggers, which means cash is being diverted to more quickly pay off the higher-rated bonds that MBIA insured.
MBIA said such triggers add protection for the company against a rise in mortgage delinquencies and defaults. Subprime mortgages, which are made to borrowers with poor or limited credit histories, are experiencing their highest default rates in a decade. "
If I am reading Perry's email correctly it seems that he is saying: "Since there are no longer any markets that will take those shiite-loans off our hands -- mainly because said markets realize that they have been sold a smelly fish barrel of crap to date -- IndyMac, fully commited to trying to continue making money in the loan business, plans on making future loans ONLY WITH THE STRICTEST AND SOUNDEST UNDERWRITING GUIDELINES, as it appears that IndyMac will have to keep future loans in its portfolio AND we don't want to LOSE OUR ASSES with that other kind of smelly fish crap loans we used to make so much money on!
Gee! Pardon my 10th grade understanding of finance and business -- BUT ISN'T THAT WHAT THE LOAN INDUSTRY AND FINANCIAL MARKETS WERE SUPPOSED TO BE DOING ALL ALONG!!!!
The estimates of the proportion of subprime and Alt-A are all over the map. In California, supposedly they were about 20% each, nationally anywhere from 10-15% each. They vary a lot by state.
What about I/O? They could be prime jumbo or Alt-A, but subprime? Loanperformance shows just about every major city in California having 40-50% I/O.
BTW, my post at the Indymac blog passed "moderation."
I have spent the last five years listening to tirades from every right-wing government-phobe on the internet to the effect that the GSEs are gonna blow! They're gonna blow! Only privatization will save us!!l!!one!
"In 2006, Alt-A origination was 18% of the securitized loan market. Agency was 44%."
Tanta,
What is the consensus definition of Alt A? Is there such a thing as Stated Income Prime?
What I'm getting at here is do we have stats on the amount of stated income loans that have been originated. IMO, liar loan qualification is what has propped up a good portion of the dislocation for fundamental values in this RE run up.
Now that stated income is going away (or at least becoming prohibitively expensive), I fear a pretty major contraction in the demand (in this case, purchasing power) for real estate.
Tanta, i believe issuers w/ balance sheet capability will "buy" their own BBBs, As etc for the time being. until natural liquidity returns those things should have good yield, lots of CE, better collateral, etc.
With lenders having to fund their own paper...I guess they'll be forced to free up some cash by dumping their inventory of forclosed houses on the market?
Well, bacon dreamz, sure they can. And if tbey want Mudd and Syron to buy their AAAs with full recourse, well, fine. But is that what Perry is asking for? Did anyone ask the OTS if they minded that?
Tanta my little Pinko-sure its hypocritical but isn't that what the GSE's/gov't/taxpayor is for? the ultimate dumping grounds upon which this slime has been relying upon, i.e., the Greenspan Put? what is your educated guess as to the likelihood the GSE's pick up the tab?
Issuers already fund their own paper. Its common for them (and the IBs in some cases) to retain the residuals, unrated, and equity portions of a deal. Thats what's catching a few of the lenders, their retained residuals are worth a lot less than they modeled.
So at least in THIS club, we agree that the GSE should stick to buying conforming loans. As liquidity dries up, these brokers will have to go from growing rice to dryland wheat. The GSE simply can't provide enough irrigation to support rice which nobody should have been planting in the deseart anyway. Funding only those nonconforming loans that you're willing to hold is NOT the end of the world, it is a return to sanity.
LawFitz, just about all Alt-A is stated, but not all stated is Alt-A.
There's a fair amount of stated income (verified asset) loans in agency and Jumbo A. But it has lower LTVs, higher FICOs, it's all owner-occupied, etc.
The line between the bottom of prime and the top of Alt-A is just as murky as the line between the bottom of Alt-A and the top of subprime. What we have here is a sudden shift in the big pivot table: all strats just moved up several notches, and the bottom of the pile, the high-LTV stated subprime stuff, is just no longer possible. When Moody's said they'd be treating some Alt-A like subprime, they were just basically saying that the lines were now re-drawn. So this time next year we'll be talking about post 8/1/07 Alt-A and pre-8/1/07 Alt-A.
The GSEs haven't been sticking to conforming loans, except where the securitizing is concerned. My understanding is that they have big portfolios of bonds, lots of which they didn't originate, even some subprime. They lost a lot of market share over the last 10 years or so and needed new ways to make money. Greenspan warned about this several times, Congress kind of waved him off.
If they weren't overloaded with these already, they would certainly be better positioned to do something now.
Thanks to the marvels of refrigeration that's outdated wisdom. The revised axiom is "Don't eat oysters in months without a paycheck.BLB
BLB: nope, refrigeration has nothing to do with it. The reason months without an R are bad is that the water is warmer and thus prone to red-tides which is a poisonous algal bloom.
but maybe some hedge fund has a crazy scheme to refrigerate the ocean.
Charlatan, it's not just a residual problem any more. They can't get anybody to take the mezzanines.
I don't know about Mudd, but I can't believe Syron is going to volunteer to clean up this mess. He certainly wasn't interested in cleaning up the subprime mess.
If they weren't overloaded with these already, they would certainly be better positioned to do something now.
Huh? They've been dumping retained portfolios for two years now at the direct order of Congress/OFHEO. If I remember correctly Fannie has shed 30% of its retained portfolio.
Sure, they own some AAA tranches of some of the better subprime. They have this mandate to keep the fluid flowin' to low to moderate income home markets. Buying Alt-A so that San Diego luxury condo owners can breathe again isn't part of the mission statement.
This cannot bode well for the CA RE marketplace where the median is $550K and conforming loans are $419K. Good luck coming up with $120K for a down. Even worse in OC, need $240K down for median home. Non agencies drying up going to kill CA, unless conforming limits raised by GSE.
"Only privatization will save us!!" means - get out of my way with your stupid regulations, I have money to make and am philospohically opposed to government in all it's forms.
That is, of course until they need a government bailout. Sen. Dodd did not think to inquire on his own, some rich contributor put a bug in his ear.
OT IMO the print edition of the FT makes the bailout of the German bank IKB seem like a big deal. Without a bailout, the regulator is said to have "warned of the worst banking crisis since 1931" The bailout may of been a key reason for the market improvement.
In 2006 about 40% of home loans made in Orange Co., California were either subprime or Alt-a. I am sure the same is true in Maricopa and Pinal counties here in Arizona.It would appear that homes sales in these regions will grind to a near halt if credit is tightened further, and mortgage companies keep disapearing.
BTW In the Ahwatukee Foothills there was a lot of home remodeling in the higher end homes early last spring, but that has falling off lately. I can tell you that homes are just sitting on the market, some for well over a year. This market is terrible.
Some Very Interesting Scut on Broker Outpost Just Now!
Posted - 08/02/2007 : 09:19:42 AM
Pretty big lender. Don't want to say the name on here. Anyways, he called and said he wanted to give us some "scoop." He went on to say that there were some "meetings" going on with FNMA, Fitch, Moody's, S&P, etc...He said within a few weeks ALL lenders will stop offering Flex 100, My Community, SISI (completely), SIVA to 90%, Full doc maxed at 95%. NO stated on ANY seconds.
This may be BS, but this guy has ALWAYS been right on the money with his info. He runs the whole SE (has a lot of AE's under him) for a LARGE lender.
Has anyone else heard this? Thoughts?
Posted - 08/02/2007 : 09:21:27 AM
no 100% product full doc will mean your house will be worth 1/2 the price over night.
this is true
i posted a few days ago that ALL MI COMPANIES will only insure upto 90% CLTV to limit the risk they have in this market since home prices contiue to slide......... what you might see now is seller held back seconds come back soooooooooo no more 100% thats right NO MORE MI TO 100%
Matter of fact, the AmTrust rep is in our office right now. I asked her about what the guy from the other lender told me. She said they are being told there will be some HUGE changes next week coming from Fannie and Freddie.
I have a lot of files that I need to place, but almost all of the lenders I have placed them with are no longer doing stated! Any help?!
Both purchases and refi's?
Bacon dreamz, what the OTS tends to think is what all the regulators think: you want to put that kind of risk on your balance sheet, you cough up 100% risk-weighted Tier 1 capital.
It might be cheaper to sell the loans with recourse.
Consumer demand for apartments remains strong as the subprime mortgage meltdown has decreased the number of renters leaving to become homeowners, according to the National Multi Housing Council's July 2007 Quarterly Survey of Apartment Market Conditions.
On average, survey respondents reported few changes in the strong market conditions recorded three months ago, with the exception of a significant worsening of debt market conditions.
One quarter of respondents said that occupancy rates and/or rents rose during the first quarter of the year, but the majority (59 percent) reported no change. As a result, the survey's Market Tightness Index was virtually unchanged at 55 -- it was 56 in April and 54 in January. (For all four of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) This is the 16th consecutive quarter in which the index has been above 50, indicating improving demand in the apartment industry.
When asked specifically about the impact of the subprime mortgage meltdown on the flow of apartment residents leaving to become homeowners, 18 percent said that there has been a big decrease and 37 percent noted a small decrease. The continued strong demand conditions suggest that any supply spillover from the excess inventory in the for-sale market into the rental market has not exceeded the growing demand for apartment residences.
Where I come from, $1.4 trillion is real money. I get the feeling you're trying to group me in with some right-wing fanatics you feel are maligning the GSEs.
The point is, their bond portfolios grew fairly quickly and some people worried and the GSEs came under pressure to limit their exposure. Which would make it a lot harder for them to bail out lenders by increasing their portfolios in a particularly dangerous way.
100% risk-weighted capital for an investment grade bond? is that right? no wonder people want to be REITs! they might be willing to eat up some excess capital for the sake of getting some deals in the market, which might calm down some of the usual BBB buyers and bring them back. who the hell knows but i think cfc said they were planning on owning everything below the AAA and still earning 20% ROE on their future deals...
Standards are still tightening for subprime as well. Yesterday, Option One raised the rates by 110 bps across the board. I compared it the sheets from December and now first-liens have higher interest rates (no seconds now) that were seconds in December. Isn't it amazing?
it can be predicted what is going to happen for the next year or so.
AAA might have no value at all today. It is only a problem if you want to sell today.
The worst well off traders of this stuff are going to hell. Once conservative and prudent lenders face the axe then an infinite amount of money will arrive to save the day.
The question is then what happens next?
An inflationary period would save borrowers. Lenders who would have already been saved will get whatever help is needed till things normalise one way or another.
But what happens next?
its a few years off
The first stage is the cull of lenders who are deemed unfit to survive.
I get the feeling you're trying to group me in with some right-wing fanatics you feel are maligning the GSEs.
Of course I'm not. You're one of my favorite pinkos.
I thought you were suggesting that the GSEs didn't have any "dry powder" because they had already been propping up the market. I guess I misread your original post.
No, I wouldn't venture an opinion on that, or even whether their portfolios were too large. But when the What-Me-Worry Kid cautioned that it could be dangerous, I took notice. Greenspan is the one telling people to take out ARMs when the fixed rate was under 6%.
He said within a few weeks ALL lenders will stop offering Flex 100, My Community
Those are all GSE conforming products (with very aggressive underwriting standards). So either the GSEs are cutting back those programs or the MIs won't insure them any longer or the G-fees are going to go up so high that it's the same thing or this is just a rumor. I suspect it's parts of each.
As of today, NovaStar announced that: "As the result of continuing volatility in the secondary market, NovaStar has set a maximum price of all wholesale loans at par. This is effective for all loans that have docs out after the close of business on August 2, 2007."
it may be tough to separate your interest economically, but it's perfectly easy to classify them separately if u just structure a normal deal then buy each bond.
"As liquidity dries up, these brokers will have to go from growing rice to dryland wheat."
As Jim said that, I couldn't help but remember the precipitous decline of the Low Country rice plantations when the 'War of Northern Agression' (Grandmother taught me that) ended slavery. When out of control capitalists (I am a capitalist, but not out of control - yet) lose the source of cheap/free economic input, then the whole system comes crashing down. An interesting parallel (to me, at least).
By the way, and slighlty off topic: please don't forget to register your thoughts with your Congress-Critter regarding the use of Federal 'Revenue' to mop up this mess.
isn't it by definition investment grade if S&P/Mad-Eye/Fitch says so? why would the identity of the buyer change that?
Well, I can imagine that issuer/servicer ratings could drop on "seller carryback" deals.
But that's actually why I asked, rhetorically, if anyone ran this by the OTS. I can imagine a regulator saying, "yeah, sure, Mad-Eye rated this investment grade, but the entire rest of the market is calling it nuclear waste or else you wouldn't be putting it on your own balance sheet."
Of course, I can also imagine a regulator saying "Hey! Go for it! We're not here to overrule the rating agencies!"
So why can't our upside-downers go out and find an FHA-qualified home they can afford and (following Cramer's advice) walk away from the home they can't afford? This might be cold comfort to some of our coastal exotics, but perhaps it's time they considered transplantation to more hospitable environments. As for the rest of it, we will see whether pressure for a "bailout" comes from conservatives or "progressives."
Nil:
Yeah.
Won't the displaced forclosees be back in the demand side of the housing market for something?!
Smaller, more affordable, home?
Rental?
Tent?
Ticket back to parent's -- inland or outland?
They won't just disappear.
"I have spent the last five years listening to tirades from every right-wing government-phobe on the internet to the effect that the GSEs are gonna blow! They're gonna blow! Only privatization will save us!!l!!one!"
The right-wingnuts and Ayn Rand bootlickers have an impressive ability to be utterly impervious, quite persistently, to any empirical reality.
E.g.
1) claim: Evil government regulation and Fannie and Freddie are going to screw things up. fact: all the private mortgage market & brokers were spewing crap, but government-regulated, and restrained agencies
2) claim: democrat tax hikes will kill the economy something horrible! fact: bill clinton's horrible nightmare of peace, prosperity and "surpluses as far as the eye can see"
4) claim: socialized medicine is horrible. fact: developed nations with socialized medicine pay less get more. Elderly in US get socialized medicine and they'd never willingly go to private.
4) claim: saddam, last throes blah blah. fact: boom!
In reality the whining from the right about the GSE's had significant astroturf to it---the private banks coveted the GSE's profits. Bluntly put, they wanted to legislatively transfer that profitability to themselves. Hence the lobbying. It seems to be the Republican way these days.
oh by the way, the CPI and PCE track rents, not home prices (they should, because then greenie would have raised rates or restricted credit to slow down the bubble), and the increase in renters and occupancy will result in apparent inflation pressure. No Fed bailout for banks.
So here's the deal: My SO bouught a FC, but it's now starting to smell fishy, like they said she can refi in 6 months, even though she can barely handle the nut as is.
She's a stated income borrower with crappy credit as is. Would it be legal for her to go 60 days delinquent and then have me try and buy the note(about 2 weeks close to end of Q3) for 60 cents and work out my own modification?
She can't afford the payments as is and it'd get a burden off the lender in a couple of ways.
i'm a screenwriter in Hollywood and make a half a mil a year. My friends are all make good money in various fields. I'm in my 30s with two kids. I'm ground zero for west l.a. upperwardly mobile...
and i'm telling you that nobody and I mean nobody in my Bel Air-Brentwood-Pac Pali Santa Monica clique could have bought without ARMS...
don't forget. It's not whether its alt A or subprime or prime. It's whether or not its adjustable that matters. That's all.
And EVERYTHING in L.A. in the last three years, to the tune of OVER 85%, has been adjustable.
Get it?
Say goodnight dick. This email is the postage stamp on the letter bomb
CFC down big time.
ya. Take away Alt A from say, California, Las Vegas, most of NJ, NY, Boston, Seattle, etc etc...any market with medians about the $400k mark.
Waddya got? Not a lot.
Housing market is worse than toast if this happens, in which case, you can pretty much guarantee a slow slide into recession.
CR, go to the IMB corporate blog. it is confirmed via Mike Perry.
link to confirmation of the death of the non-agency secondary market. talk of GSEs and congress stepping in to save the day...hooray!
http://www.theimbreport.com/
Indymac to Make `Major Changes' to Mortgage Lending After Slump
By Jody Shenn and Bradley Keoun
Aug. 2 (Bloomberg) -- IndyMac Bancorp Inc. is making ``very major changes'' to its lending standards and may raise interest rates it offers on home loans because of a slump in mortgage securities, according to an e-mail to employees.
The market for mortgage bonds has become ``very panicked and illiquid,'' Chief Executive Officer Michael Perry said today in an e-mail to employees that was confirmed by spokesman Grove Nichols.
``Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,'' Perry said in the e-mail.
Other mortgage lenders are taking similar steps this week, Perry wrote.
Strange that this round of credit tightening would coincide with a huge rally in the HBs, as this shuts down another enormous number of would-be buyers. Could this rally have been engineered to free up some short shares as the hedgies further build their positions, at attractive prices?
Think cancellations have been high in the past? Time to recalibrate high cancellations.
Just remember, kids, that while August might rhyme with February, it still doesn't have an R in it. So don't eat the oysters.
Oysters? I'm having toast!!!
Re the Moody's warning about Alt-A, there were actually two reports, the first saying they increased loss expectations on Alt-A 10-100% and the second on option ARMs:
"The Option ARM methodology revisions are in response to the current weaker housing and mortgage markets. In addition, the updated methodology refines our credit risk analysis of different Option ARM products. The updated Option ARM methodology is expected to increase our loss estimates by up to 20% and Aaa loss estimates by 10% to 40%."
From the wording, the increase is additive for Alt-A option ARMs. DSL and FED (which is up 5% today because they announced that they've been buying shares) sold lots of SISA (ergo Alt-A) option ARMs.
The uptick today is a total head-fake. It turns out they went into the market and bought lots of shares, particularly in the last week, while the share price was falling dramatically. Real effective buy-back. If I didn't already have 32 put contracts on FED I would be buying more... I may anyways...
(I mistakenly posted this on another thread, sorry.)
On CFC, I noted that 27 seemed to be a support/resistance line dating back to Nov 03-May 04. Next stop down is 25.5 as a resistance line during the early part of that same period. If it breaks 24, then next stop down looks like 21ish.
I'm not a technical chart expert by any stretch. However, I do think that enough people (or trading computers) use the chart analysis that you can guess on some plays by looking at it.
Perry... [the private secondary market is not functioning]
Really? I think it wasn't functioning in 2004-2006. What do they do with their own customers that need to refi or default? Talk about putting salt and cyanide on your young before devouring them.
"February, it still doesn't have an R in it. So don't eat the oysters."
Thanks to the marvels of refrigeration that's outdated wisdom. The revised axiom is "Don't eat oysters in months without a paycheck."
the whole e-mail is here:
Letter from Indymac's CEO/Chairman to Bank Personnel (Aug 1) [General] - MarketTicker Forums
Perhaps the headline for this post should read "Moron Alt-A"
...sorry...
Tanta,
I just posted the following response to the Indymac blog linked to above (It's awaiting "moderation", seriously, that's how it's worded.) I'd be interested in your opinion.
What I posted:
have encouraged the GSEs to step in and provide additional liquidity to the secondary markets (their primary role)
I like the way you are publicly addressing these issues, but the above isnt really true. The GSEs were created to provide the means for maintaining a secondary market for conforming loans. It definitely is not to directly invest in Alt-A paper.
Many people see now that the GSEs already have too much non-prime paper, adding to it will severely damage their viability. This would be a very ill-advised bailout.
I have a question about PMI. As we all know, if you don't put 20% down, and you have to pay PMI premiums, once you build up equity past 20% you can have your PMI cancelled.
So does that happen in reverse? I mean, if you put 20% down, but your home value shrinks so that you no longer have 20% equity, are they going to sock you with PMI???
P.S. We will still originate product that cannot be sold to the GSEs just less of it and we will have to assume we retain it in portfolio (until the AAA private MBS market recovers).
That seems like a big P.S. to me!
Volume will be down, and we'll be holding all the paper no will will touch.
Kinda like saying, ..Oh by the way...there's so much poison in the food out there we'll be eating less and only the food no one else will eat. Bon Appetit!
The imbreport link is scary, but the market is overreacting. Barely being able to trade AAA doesn't make a whole lot of sense.
I think I read on this blog that Alt-A is only 6% of the market, but definitely concentrated in a few states.
Here is the 64M question:
this is now all over the world.
what does that mean to ML stocks - are they now at their lows, will the fed /GSE/ congress forced to intervine in days ?
Or are we just at the rim of a large chasem that will only be crossed once more normal lending practices (and normal R/E prices) will be practiced ?
M-F,
If AAA isnt really AAA then not trading them makes a whole lot of sense.
It's good to see Dodd is willing to step up and "help" the banking industry with other people's money.
He must be a nice guy.
"panicked and illiquid"?
Is the market overreacting? One person's "panicked and illiquid" is another person's "return to rationality". I don't regard it as panic to calmly refuse to touch stuff with a ten-foot pole until you know EXACTLY what it is.
Indymac and others brought this on themselves. And on us, too, unfortunately.
"I think I read on this blog that Alt-A is only 6% of the market, but definitely concentrated in a few states."
Maybe I'm way off base here, but I work at a Manhattan Beach, CA mortgage brokerage and I can tell you that 90% of the loans we originate are stated income.
This is the cream of the crop in Los Angeles and 90% are stating income. Now maybe your Alt A definition doesn't including liar loans, but mine certainly does.
And maybe Manhattan Beach is far from representative of the rest of the nation, but if we're at 90% here, I highly doubt that the nationwide avg is only 6%.
Take it FWIW.
hey what's the criteria for a hat tip in this joint?!
M-F, If I remember correctly, non-prime was about 33% of the mortgage market in '05 (split pretty evenly between subprime and Alt-A). I think it was even more in '06.
Maybe Tanta has the numbers (I can't find them right now).
Best to all.
Is that 6% of the originations, or 6% of the dollar value of the originations?
Here are the last two LoanPerformance newsletters :
Alt-A performance as of 12/06
http://www.loanperformance.com/market_pulse/mp/MP%20December%202006%20Data%20Low%20Res.pdf
Impact of Fully index, Full amortization qualification:
http://www.loanperformance.com/market_pulse/currentMP_lowres.pdf
Yal - no, if Alt-A is truly constrained, then it will force a sharp downward pricing in some of the nation's highest priced RE markets. So what is happening now will roll forward into all all classes of lending.
The other implication is that CMBX is taking just as a hard a hit, and so we can expect commercial development to take a sharp downward trend very quickly.
Okay - I am going to add to the conspiracy talk here. Maybe AAA is getting little action because the same people who are going to lose a boatload on subprime and Alt-A are working in concert to try to force more profit out of new AAAs. Especially with Congress getting involved, there's probably 50-100 billion to be squeezed out of the Feds to offset losses.
I still haven't seen much on bad AAAs out there?
I generally don't subscribe to conspiracy talk but..
Let's for a second imagine that congress authorizes the agencies the ability to purchase non-conforming loans, like $950K CA 95% LTV SISA junk. Do you suppose IMB, FED, DSL receive a get-out-of-the-black-hole-free card and unload all their waste on the agencies?
Who are the big aggressive commercial lenders?
The imbreport link is scary, but the market is overreacting. Barely being able to trade AAA doesn't make a whole lot of sense.
He said "private" AAA MBS bonds.
You can get a "private" AAA MBS in two ways:
Asking the GSEs to buy what is by definition a non-GSE loan in order to save everyone from the consequences of having ignored the GSEs' credit policy for the last five years is the height of chutzpah.
It may well be the height of chutzpah, but the question is, in such a political case as this, who is calling the shots and who is taking orders. Given the current (dis)functioning of our government, you can't put any ridiculous notion out of the realm of possibility.
Think the Pru's phone lines are busy?
Prudential Buys Subprime, Citing `Opportunities' (Update3) - Bloomberg.com
Prices of some subprime securities rated AAA and AA are now disproportionate to the underlying risk and are primarily liquidity-driven,'' Prudential Vice Chairman John Strangfeld said on a conference call with analysts today.As a consequence, we see selective opportunities to take advantage of that.''
If AAA isnt really AAA then not trading them makes a whole lot of sense.
Didn't we cover just this topic here 2-3 weeks back? That AAA for CDO does not mean it's really AAA?
When you play such games, why should anyone trust any ratings? After all who knows if AAA for goose is the same as AAA for gander.
In 2006, Alt-A origination was 18% of the securitized loan market. Agency was 44%.
BTW, who knew that Citadel was really a front for the PPT?
MBIA Says Subprime Is `No Threat' to CDO Exposure (Update3) - Bloomberg.com
"Three transactions MBIA insured for Calabasas, California- based Countrywide Financial Corp. have hit so-called triggers, which means cash is being diverted to more quickly pay off the higher-rated bonds that MBIA insured.
MBIA said such triggers add protection for the company against a rise in mortgage delinquencies and defaults. Subprime mortgages, which are made to borrowers with poor or limited credit histories, are experiencing their highest default rates in a decade. "
Really Extraordinary!
If I am reading Perry's email correctly it seems that he is saying: "Since there are no longer any markets that will take those shiite-loans off our hands -- mainly because said markets realize that they have been sold a smelly fish barrel of crap to date -- IndyMac, fully commited to trying to continue making money in the loan business, plans on making future loans ONLY WITH THE STRICTEST AND SOUNDEST UNDERWRITING GUIDELINES, as it appears that IndyMac will have to keep future loans in its portfolio AND we don't want to LOSE OUR ASSES with that other kind of smelly fish crap loans we used to make so much money on!
Gee! Pardon my 10th grade understanding of finance and business -- BUT ISN'T THAT WHAT THE LOAN INDUSTRY AND FINANCIAL MARKETS WERE SUPPOSED TO BE DOING ALL ALONG!!!!
CR,
The estimates of the proportion of subprime and Alt-A are all over the map. In California, supposedly they were about 20% each, nationally anywhere from 10-15% each. They vary a lot by state.
What about I/O? They could be prime jumbo or Alt-A, but subprime? Loanperformance shows just about every major city in California having 40-50% I/O.
BTW, my post at the Indymac blog passed "moderation."
I have spent the last five years listening to tirades from every right-wing government-phobe on the internet to the effect that the GSEs are gonna blow! They're gonna blow! Only privatization will save us!!l!!one!
And now what?
"In 2006, Alt-A origination was 18% of the securitized loan market. Agency was 44%."
Tanta,
What is the consensus definition of Alt A? Is there such a thing as Stated Income Prime?
What I'm getting at here is do we have stats on the amount of stated income loans that have been originated. IMO, liar loan qualification is what has propped up a good portion of the dislocation for fundamental values in this RE run up.
Now that stated income is going away (or at least becoming prohibitively expensive), I fear a pretty major contraction in the demand (in this case, purchasing power) for real estate.
Tanta, i believe issuers w/ balance sheet capability will "buy" their own BBBs, As etc for the time being. until natural liquidity returns those things should have good yield, lots of CE, better collateral, etc.
With lenders having to fund their own paper...I guess they'll be forced to free up some cash by dumping their inventory of forclosed houses on the market?
Well, bacon dreamz, sure they can. And if tbey want Mudd and Syron to buy their AAAs with full recourse, well, fine. But is that what Perry is asking for? Did anyone ask the OTS if they minded that?
Tanta my little Pinko-sure its hypocritical but isn't that what the GSE's/gov't/taxpayor is for? the ultimate dumping grounds upon which this slime has been relying upon, i.e., the Greenspan Put? what is your educated guess as to the likelihood the GSE's pick up the tab?
Issuers already fund their own paper. Its common for them (and the IBs in some cases) to retain the residuals, unrated, and equity portions of a deal. Thats what's catching a few of the lenders, their retained residuals are worth a lot less than they modeled.
So at least in THIS club, we agree that the GSE should stick to buying conforming loans. As liquidity dries up, these brokers will have to go from growing rice to dryland wheat. The GSE simply can't provide enough irrigation to support rice which nobody should have been planting in the deseart anyway. Funding only those nonconforming loans that you're willing to hold is NOT the end of the world, it is a return to sanity.
why would they have to sell the AAA with full recourse?
LawFitz, just about all Alt-A is stated, but not all stated is Alt-A.
There's a fair amount of stated income (verified asset) loans in agency and Jumbo A. But it has lower LTVs, higher FICOs, it's all owner-occupied, etc.
The line between the bottom of prime and the top of Alt-A is just as murky as the line between the bottom of Alt-A and the top of subprime. What we have here is a sudden shift in the big pivot table: all strats just moved up several notches, and the bottom of the pile, the high-LTV stated subprime stuff, is just no longer possible. When Moody's said they'd be treating some Alt-A like subprime, they were just basically saying that the lines were now re-drawn. So this time next year we'll be talking about post 8/1/07 Alt-A and pre-8/1/07 Alt-A.
bacon dreamz, are you talking about on-balance sheet financing, or the usual bankruptcy-remote SPE but having the issuer literally buy the subs?
The GSEs haven't been sticking to conforming loans, except where the securitizing is concerned. My understanding is that they have big portfolios of bonds, lots of which they didn't originate, even some subprime. They lost a lot of market share over the last 10 years or so and needed new ways to make money. Greenspan warned about this several times, Congress kind of waved him off.
If they weren't overloaded with these already, they would certainly be better positioned to do something now.
Very wild ride today too at the DJIA and the S&P
Thanks to the marvels of refrigeration that's outdated wisdom. The revised axiom is "Don't eat oysters in months without a paycheck.BLB
BLB: nope, refrigeration has nothing to do with it. The reason months without an R are bad is that the water is warmer and thus prone to red-tides which is a poisonous algal bloom.
but maybe some hedge fund has a crazy scheme to refrigerate the ocean.
Charlatan, it's not just a residual problem any more. They can't get anybody to take the mezzanines.
I don't know about Mudd, but I can't believe Syron is going to volunteer to clean up this mess. He certainly wasn't interested in cleaning up the subprime mess.
Anyone know why Impac is up so much today?
If they weren't overloaded with these already, they would certainly be better positioned to do something now.
Huh? They've been dumping retained portfolios for two years now at the direct order of Congress/OFHEO. If I remember correctly Fannie has shed 30% of its retained portfolio.
Sure, they own some AAA tranches of some of the better subprime. They have this mandate to keep the fluid flowin' to low to moderate income home markets. Buying Alt-A so that San Diego luxury condo owners can breathe again isn't part of the mission statement.
BK remote, buy the subs.
Bob_in_Mass you made it on the clog, man.
that's obvious. they can't get anyone to fund a AAA at the moment.
This cannot bode well for the CA RE marketplace where the median is $550K and conforming loans are $419K. Good luck coming up with $120K for a down. Even worse in OC, need $240K down for median home. Non agencies drying up going to kill CA, unless conforming limits raised by GSE.
Tanta,
"Only privatization will save us!!" means - get out of my way with your stupid regulations, I have money to make and am philospohically opposed to government in all it's forms.
That is, of course until they need a government bailout. Sen. Dodd did not think to inquire on his own, some rich contributor put a bug in his ear.
It is the height of hypocricy and graft.
OT IMO the print edition of the FT makes the bailout of the German bank IKB seem like a big deal. Without a bailout, the regulator is said to have "warned of the worst banking crisis since 1931" The bailout may of been a key reason for the market improvement.
PS i am no expert in what the OTS thinks about things. you will have to give me an ubernerd on that subject.
Calculated Risk
In 2006 about 40% of home loans made in Orange Co., California were either subprime or Alt-a. I am sure the same is true in Maricopa and Pinal counties here in Arizona.It would appear that homes sales in these regions will grind to a near halt if credit is tightened further, and mortgage companies keep disapearing.
BTW In the Ahwatukee Foothills there was a lot of home remodeling in the higher end homes early last spring, but that has falling off lately. I can tell you that homes are just sitting on the market, some for well over a year. This market is terrible.
Businessweek needs to come out with the 2007 version of the Map of Misery.
Some Very Interesting Scut on Broker Outpost Just Now!
Bacon dreamz, what the OTS tends to think is what all the regulators think: you want to put that kind of risk on your balance sheet, you cough up 100% risk-weighted Tier 1 capital.
It might be cheaper to sell the loans with recourse.
Just found this surprise report, what a shocker:
Survey: Fewer renters becoming homeowners | Real Estate and Technology News for Agents, Brokers and Investors | Inman News
Survey: Fewer renters becoming homeowners
Subprime lending crisis increases apartment demand
Thursday, August 02, 2007
Inman News
Consumer demand for apartments remains strong as the subprime mortgage meltdown has decreased the number of renters leaving to become homeowners, according to the National Multi Housing Council's July 2007 Quarterly Survey of Apartment Market Conditions.
On average, survey respondents reported few changes in the strong market conditions recorded three months ago, with the exception of a significant worsening of debt market conditions.
One quarter of respondents said that occupancy rates and/or rents rose during the first quarter of the year, but the majority (59 percent) reported no change. As a result, the survey's Market Tightness Index was virtually unchanged at 55 -- it was 56 in April and 54 in January. (For all four of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) This is the 16th consecutive quarter in which the index has been above 50, indicating improving demand in the apartment industry.
When asked specifically about the impact of the subprime mortgage meltdown on the flow of apartment residents leaving to become homeowners, 18 percent said that there has been a big decrease and 37 percent noted a small decrease. The continued strong demand conditions suggest that any supply spillover from the excess inventory in the for-sale market into the rental market has not exceeded the growing demand for apartment residences.
Tanta,
Where I come from, $1.4 trillion is real money. I get the feeling you're trying to group me in with some right-wing fanatics you feel are maligning the GSEs.
The point is, their bond portfolios grew fairly quickly and some people worried and the GSEs came under pressure to limit their exposure. Which would make it a lot harder for them to bail out lenders by increasing their portfolios in a particularly dangerous way.
100% risk-weighted capital for an investment grade bond? is that right? no wonder people want to be REITs! they might be willing to eat up some excess capital for the sake of getting some deals in the market, which might calm down some of the usual BBB buyers and bring them back. who the hell knows but i think cfc said they were planning on owning everything below the AAA and still earning 20% ROE on their future deals...
ReadingandLearning - to that post I say --- inconceivable!
Otherwise, it's welcome to the cliffs of INSANITY for home prices.
Standards are still tightening for subprime as well. Yesterday, Option One raised the rates by 110 bps across the board. I compared it the sheets from December and now first-liens have higher interest rates (no seconds now) that were seconds in December. Isn't it amazing?
And after that, the Fire Swamp and Squatters of Unusual Size!
Oh the S.O.U.S.? I don't think they exist...
I dont think we have to worry.
it can be predicted what is going to happen for the next year or so.
AAA might have no value at all today. It is only a problem if you want to sell today.
The worst well off traders of this stuff are going to hell. Once conservative and prudent lenders face the axe then an infinite amount of money will arrive to save the day.
The question is then what happens next?
An inflationary period would save borrowers. Lenders who would have already been saved will get whatever help is needed till things normalise one way or another.
But what happens next?
its a few years off
The first stage is the cull of lenders who are deemed unfit to survive.
I get the feeling you're trying to group me in with some right-wing fanatics you feel are maligning the GSEs.
Of course I'm not. You're one of my favorite pinkos.
I thought you were suggesting that the GSEs didn't have any "dry powder" because they had already been propping up the market. I guess I misread your original post.
Unless you mean the F.W.O.P. who can turn on you very quickly... (Formerly Well Off People)
100% risk-weighted capital for an investment grade bond?
Well, that's the thing, isn't it? It's hard to call it "investment grade" when there is no market for it. I mean, what's the book value?
I am simply wondering how you maintain the difference between "mezz" and "resid" when the issuer has to own everything under AA.
How much dry powder do the GSE have? Werent they sheddding retained portfolio because the regulators said they had to limit their size?
Could someone translate the implications of ReadingNLearning's post at 3:17 pm?
If what he is reporting is correct, does that mean that the housing market will shortly "Pass GO and head directly to jail"?
Tanta,
No, I wouldn't venture an opinion on that, or even whether their portfolios were too large. But when the What-Me-Worry Kid cautioned that it could be dangerous, I took notice. Greenspan is the one telling people to take out ARMs when the fixed rate was under 6%.
He said within a few weeks ALL lenders will stop offering Flex 100, My Community
Those are all GSE conforming products (with very aggressive underwriting standards). So either the GSEs are cutting back those programs or the MIs won't insure them any longer or the G-fees are going to go up so high that it's the same thing or this is just a rumor. I suspect it's parts of each.
This is just in:
As of today, NovaStar announced that: "As the result of continuing volatility in the secondary market, NovaStar has set a maximum price of all wholesale loans at par. This is effective for all loans that have docs out after the close of business on August 2, 2007."
Next trend in lending - no YSP at all?
it may be tough to separate your interest economically, but it's perfectly easy to classify them separately if u just structure a normal deal then buy each bond.
M-F,
If you look here, you'll see that Dodd received...you know, some money from industries outside of banking.
404
He's just trying to help the little guy.
"As liquidity dries up, these brokers will have to go from growing rice to dryland wheat."
As Jim said that, I couldn't help but remember the precipitous decline of the Low Country rice plantations when the 'War of Northern Agression' (Grandmother taught me that) ended slavery. When out of control capitalists (I am a capitalist, but not out of control - yet) lose the source of cheap/free economic input, then the whole system comes crashing down. An interesting parallel (to me, at least).
By the way, and slighlty off topic: please don't forget to register your thoughts with your Congress-Critter regarding the use of Federal 'Revenue' to mop up this mess.
An acronym seems appropriate: BOHICA.
isn't it by definition investment grade if S&P/Mad-Eye/Fitch says so? why would the identity of the buyer change that?
lama, nice find. I would have guessed as much about the top 5.
isn't it by definition investment grade if S&P/Mad-Eye/Fitch says so? why would the identity of the buyer change that?
Well, I can imagine that issuer/servicer ratings could drop on "seller carryback" deals.
But that's actually why I asked, rhetorically, if anyone ran this by the OTS. I can imagine a regulator saying, "yeah, sure, Mad-Eye rated this investment grade, but the entire rest of the market is calling it nuclear waste or else you wouldn't be putting it on your own balance sheet."
Of course, I can also imagine a regulator saying "Hey! Go for it! We're not here to overrule the rating agencies!"
Depends on the kind of day I'm having.
So why can't our upside-downers go out and find an FHA-qualified home they can afford and (following Cramer's advice) walk away from the home they can't afford? This might be cold comfort to some of our coastal exotics, but perhaps it's time they considered transplantation to more hospitable environments. As for the rest of it, we will see whether pressure for a "bailout" comes from conservatives or "progressives."
Nil:
Yeah.
Won't the displaced forclosees be back in the demand side of the housing market for something?!
Smaller, more affordable, home?
Rental?
Tent?
Ticket back to parent's -- inland or outland?
They won't just disappear.
"I have spent the last five years listening to tirades from every right-wing government-phobe on the internet to the effect that the GSEs are gonna blow! They're gonna blow! Only privatization will save us!!l!!one!"
The right-wingnuts and Ayn Rand bootlickers have an impressive ability to be utterly impervious, quite persistently, to any empirical reality.
E.g.
1) claim: Evil government regulation and Fannie and Freddie are going to screw things up. fact: all the private mortgage market & brokers were spewing crap, but government-regulated, and restrained agencies
2) claim: democrat tax hikes will kill the economy something horrible! fact: bill clinton's horrible nightmare of peace, prosperity and "surpluses as far as the eye can see"
4) claim: socialized medicine is horrible. fact: developed nations with socialized medicine pay less get more. Elderly in US get socialized medicine and they'd never willingly go to private.
4) claim: saddam, last throes blah blah. fact: boom!
In reality the whining from the right about the GSE's had significant astroturf to it---the private banks coveted the GSE's profits. Bluntly put, they wanted to legislatively transfer that profitability to themselves. Hence the lobbying. It seems to be the Republican way these days.
oh by the way, the CPI and PCE track rents, not home prices (they should, because then greenie would have raised rates or restricted credit to slow down the bubble), and the increase in renters and occupancy will result in apparent inflation pressure. No Fed bailout for banks.
So here's the deal: My SO bouught a FC, but it's now starting to smell fishy, like they said she can refi in 6 months, even though she can barely handle the nut as is.
She's a stated income borrower with crappy credit as is. Would it be legal for her to go 60 days delinquent and then have me try and buy the note(about 2 weeks close to end of Q3) for 60 cents and work out my own modification?
She can't afford the payments as is and it'd get a burden off the lender in a couple of ways.
i'm a screenwriter in Hollywood and make a half a mil a year. My friends are all make good money in various fields. I'm in my 30s with two kids. I'm ground zero for west l.a. upperwardly mobile...
and i'm telling you that nobody and I mean nobody in my Bel Air-Brentwood-Pac Pali Santa Monica clique could have bought without ARMS...
don't forget. It's not whether its alt A or subprime or prime. It's whether or not its adjustable that matters. That's all.
And EVERYTHING in L.A. in the last three years, to the tune of OVER 85%, has been adjustable.
Get it?
Say goodnight dick. This email is the postage stamp on the letter bomb
Hi,
Your Blog is right on the spot about HomEq Sevicing. You can read a lot more comments from HomeQ Consumers on this site.
Regards,