I find it hard to believe that mods would perform better in this market climate than that of a couple years ago. I suppose they could be more careful about who they give mods to, but that seems even harder to believe.
"If that is true, then performance of modified loans can be improved by something that is well within the control of the industry."
true... except it looks like most proposals are looking more at doing blanket mods instead, like freezing EVERY mortgage that meets certain criteria (like the FICO holy grail)
Regarding the Greenberg blog and similar reporting...
When do we begin actively discussing insolvency? If one accepts the emerging reality that this paper is worth far less than balance sheet valuations, then the derivative issue of solvency is THE major issue here.
Do we have to wait for the auditors to illuminate the obvious?
From the commentary I heard it sounds like future bailout plans involve issuing munis to provide hard-core taxpayer-funded government cash money bailouts.
Then the Fed can monetize these to print money after congress amends their powers to use whiteout on their balance sheets wherever convenient.
Look, another way of making my point is that in 2005 and earlier, the primary "workout" for a nonperforming (or about to default) loan was refinance. Not mods; we just didn't do very many mods in the years since the last major RE bust.
So yes, if you want an idea of how likely future defaults are, look at the success of some of the refis we made for borrowers in trouble, a/k/a subprime loans. They aren't doing so hot. But they are not yet defaulting at 60%.
I am merely trying to remind everyone that we were supposed to have just learned the hard way not to rely on "statistics" based on a very different marketplace. Mods done in 2005 and prior would have been the very bottom of the barrel, most adversely-selected group of people who still managed to qualify for something short of foreclosure. That's all I'm saying.
Currently, we have a total shutdown in the subprime and Alt marketplace into which the borrowers of 2005 and prior used to refinance. Therefore we will end up modifying people who could have refinanced in earlier years. I require evidence, not simple religious faith, that this group will perform like a 2005-era group of modification candidates. That's all. I share a lot of people's concerns about the Paulson Plan, but let's not get dogmatic.
I thought the President's speech was highly effective. He needed to move the spotlight from "greedy" Wall Street to the "do nothing" Congress and inefficient agencies he did so. Political speechs are one of Mr Bush's few competences. There was a brief mention of investors and servicers but the rest of the financial chain from originators to hedge funds and rating agencies were not present. Basically the message was that poor people got into trouble again which has caused a confidence problem in an otherwise strong economy which would not have happened if the (Democratic) Congress had acted when asked months ago.
This will be an interesting political battle - more about image than substance. Expect Congress to modify Bush's legislation which he will veto and claim the "do nothing" Congress is refusing to help poor people.
Dec. 6 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson's plan to freeze some subprime mortgage rates in an effort to stop a wave of foreclosures could lead to ratings cuts on some mortgage bonds, Standard & Poor's said.
``Simply freezing interest rates on some U.S. first-lien subprime mortgage loans would have a negative impact'' on ratings of some residential mortgage-backed securities, analysts at New York-based S&P wrote in a report today.
Unsympathetic, there isn't much in Hanson's views that differ from things I have been saying for years.
Where there are differences--and David Pearson, I think this also speaks to your post--I am aware that there are parts of the country that are not California and Florida.
If you live around people who max out the cards and do the cash-outs to buy the toys in a very expensive part of the country, you are likely to think that is absolutely typical and all borrowers have done that.
If you live in flyover and realize that a lot of people cashed out to pay for medical care or tide them over between plant layoffs, as well as some people just blowing money, you tend to see the bag as more mixed and generalizations as less easy to make.
No analysis of the situation can, obviously, ignore CA and FL. But I get tired of those markets being considered the center of the universe.
Tanta- I know you've just gotten a jolt of adrenaline from these exciting recent events that are crying out for someone with your exact (probably unique) combination of talent(s), knowledge, judgement, and experience; but don't let the adrenaline rush fool you: Take good care of yourself. It's obvious we're going to need you even more in the days to come. Then again, Dum vivimus vivimus. Vale
So now Congress will follow up with the money. That will be interesting as many citizens are opposed to any bailout, direct or indirect. I sent my opposition emails.
If your primary concern is working people who are having trouble finding affordable homes, then let housing prices fall!
Nothing would be more beneficial to the vast majority of Americans, who simply cannot afford real estate prices as they are in most major markets.
For those who do own a home on a subprime mortgage, and who lose it, they will be BETTER OFF IN THE LONG RUN if housing prices fall.
And housing prices won't ever fall to rational levels again if the govt and Wall Street keep coming up with "bailout" plans aimed at preserving the value of institutionally helf bonds.
(They may use mincing rhetoric to say that what they really care is working families, it's not true. What they really care about is their bond portfolios.)
Let housing prices fall! Let Wall Street take its losses and let the market bring housing back to rational price levels.
And let people who get foreclosed on live in an economy where capitalistic forces are actually allowed to work. That way, they'll be able to afford to buy a house in a couple of years that has a mortgage they can actually afford to pay off.
I was speaking with a servicer last week that started 12-month mods back for borrowers with payment reset back in October 2006 and were just assessing performance of their program.
They found that 20 percent of mods defaulted in one year.
Of those that did not modify, 40 percent defaulted.
The coasts are not the center of the universe, but nonetheless, they are where the massive bulk of the nation's residential real estate value now sits. So, what happens there is more important to the general economy.
And it's true, we are in uncharted territory here. However, considering your post of a couple of days ago about the Boston Fed's report--that negative HPA is a key driver of foreclosure--the data we do have about the post-2005 world are not encouraging.
Boys, boys, so far the government has not passed a law or done anything by force. It has simply brokered a deal, one that may well fit inside existing contract terms.
I think it all comes down to stated income. Mods of stated income loans without income verification would likely result in extremely high re-default rates. So if they limit the program to full-doc, that's a big step. Let's hope so.
"If FICO is 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
Can someone 'splain the logic behind the above to me, I'm trying to figure out why they would assume income in one instance but not in the other. It's like they dont want to know how the low fico low doc people are making payments, just that they are and go with it. Is it to take the load off the servicers? Prevent the massive number of fraud originations to be revealed?
If FICO is 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts
Dagnabbit, I promist to use preview this time (the less than greater than signs are messing up Haloscan):
If FICO is LESS THAN 660 and is not 10% or more higher than FICO at origination, borrower is considered to meet the FICO test and servicer generally won't determine current income
If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts
If a homeowner sticks it out 2 years and then does the walk away and the house eventually sells for less than the mortgage amount, would capital gain tax be due if that amount is less than $250,000?
I think it all comes down to stated income. Mods of stated income loans without income verification would likely result in extremely high re-default rates. So if they limit the program to full-doc, that's a big step. Let's hope so.
Which gives you a smaller universe to start with, and likely better success rates, but does less to trim the number about to FC. I'm in favor of doing it this way, but I think it will have less impact than the rhetoric suggests.
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
- Macbeth, Act V, Sc V -
The "FICO test" dictates whether or not they examine current income.
In short - if X credit is still crap, no need to worry about their current income. However, if credit was decent to begin with, or is better now, current income must be looked at (ie. in case they don't NEED the Freeze, in theory)
My question is...which FICO to use? Which bureau, if incomes changed (e.g. co-x now is the breadwinner, normal UW guidelines say use her middle FICO).
"Isn't this announced effort simply better organizing and streamlining a process the servicer can pursue anyway?" -- Allen C.
I think that's basically right--all I see here is (1) a PR effort directed at borrowers to get them to agree to the mods and (2) some legal cover for the servicers if they're sued by investors in particular tranches who feel their interests are damaged by the mods. Doing mass modifications rather than individually analyzing each loan leaves them a bit more exposed on that score.
I think the servicers would probably win those suits anyway, as it seems to me they could put together a plausible argument that the mods are intended to maximize the value of the pool, but they'd rather not even have to defend them if possible.
No analysis of the situation can, obviously, ignore CA and FL. But I get tired of those markets being considered the center of the universe.
This may be more about CA and Florida than you think. Frm the MBA:
While California and Florida together have 36.4 percent of all of the prime ARM loans in the country, they had 42.4 percent of the nations foreclosure starts for prime ARMS. Similarly, California and Florida together have 28.1 percent of the subprime ARMs and 33.7 percent of foreclosure starts for subprime ARMs.
"If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
As I understand, the plan does not intend to help any prime borrowers. So, borderline borrowers who are improving their credit records are also suspected to be "prime" and they will be subject to more scrutiny.
But, the credit scores are quite easy to manipulate, specially in the negative side.
Presuming we have a mandate that time is of the essence and resources are limited...there is a very low likelihood that someone who had crap credit, and still has crap credit, has improved their income situation dramatically, unless they hit the lotto.
even if they did, we won't concern ourselves with that small subset, in the interest of getting as many of these mods done as quickly and efficiently as possible.
So the logic would be to take the load off the servicers.
I just think this group also has the highest likelihood of fraud / bad originations.
This thing seems like just as much a legal cover for the bad originators than it is anything else. A Countrywide type company liability just went wayyy down (they originate, sell the loan and retain the servicing righs). The fraud that would normally be uncovered during a normal due diligence for modification will now not be uncovered. No wonder their stock jumped.
Regarding the re-default rate. Yes they were for other reasons than now (back then, lost jobs, illness).
However, prior to 2005 the loan mods had some equity (versus none or negative now) and were done in a rising HPA envirnoment. Now HPA is going down and expected to go down more.
IF you rate is being freezed and you have no (negative) equity and your house value is declining, shouldn't we expect really higher re-dafault rates?
Foreclsure now means less pain for investors than foreclusre later at lower prices. How do we get the credit market better with this hanging over everyone's head?
"can it get any nerdier than that? Can it? Sheesh"...
I am glad to finally find a group of like minds (mortgage nerds). Up until my discovery of this blog, it has been a lonely existence of inner dialogue.
I am amused by those whose greatest fear is that not enough people will be thrown out of their homes fast enough. Have patience. The Super SIV and the mortgage freeze plans are nothing more than election year spit polish. The Democrats will be left holding the bag in 2009. Mission accomplished. 2009 should be a big year for the trailer and truck rental business.
Man sells his home to two school teachers in 1995 for $625k. No seller financing. Just a regular P&S.
A few months ago, the couple called him and wanted to renegotiate the price.
That has to be true. Who could make that up?
I strongly suspect a huge run to the exits as the CDO's lose 80% of their value.
That would be: o.80 X 737 = 589 Billion in CDO losses alone.
For MBS' CDO losses that would be o.80 X 340 = 272 Billion.
Total Market Cap of the big banks and brokerage houses is just under 2,000 Billion.
If the Level 3's are off by 80% (and they [i][b]might[/b][/i] not all be CDO's and sludge), then these houses are insolvent unless they have shorted themselves sufficiently to bail out their own bacon:
Morgan Stanley (-35.4), Goldman Sachs (-18.6), Lehman Brothers (-6., Bear Stearns (-3..
Looking ok are:
Citigroup (+17.6), Merrill Lynch (+29.6).
My analysis may lack a few things, but I believe the gist is correct.
Top CDO Classes May Lose 80 Percent, Barclays Says (Update1)
By Jody Shenn
Dec. 6 (Bloomberg) -- U.S. mortgage assets in collateralized debt obligations have lost so much value that the top classes of the securities may be worth as little as 20 cents on the dollar in a liquidation, Barclays Plc analysts said in a report.
About 20 percent to 30 percent of principal would be covered for the ``super senior'' portions of mezzanine asset-backed bond CDOs, which mainly contain mortgage bonds and other CDOs initially assigned low investment-grade ratings, Barclays said in the report yesterday. The senior-most classes of CDOs containing highly rated asset-backed bonds would recoup 30 percent to 65 percent, it said.
Determining accurate prices for the collateral is hard to do, the New York-based analysts, Joseph Astorina, Elena Warshawsky and Wei-Ang Lee, said. ``We believe our methodology is analytically rigorous and represents a good jumping off point,'' they wrote.
Recent writedowns at the world's biggest financial companies including Citigroup Inc., Merrill Lynch & Co., Morgan Stanley and Wachovia Corp. amid a global credit-market seizure were partly related to declines on super-senior CDOs. The losses, sparked by rising U.S. foreclosures, may reach $77 billion, JPMorgan Chase & Co. CDO analysts estimate.
Royal Bank of Scotland Group Plc reported 1.5 billion pounds ($3 billion) of markdowns today linked to credit markets. Canadian I
"If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
I think they should have used a FICO cutpoint of 666.
There's all sorts of quality assets that need to be classed @ Level 3, not just crappy CDO's, so that might lead you astray.
Now Citi has a higher percentage of their Level 3 assets tied up in CDOs. In a vacuum, no big deal.
But add in the reserves they'll have to retain to account for all their SIV and pier loan/PE exposure(likely $120-150b range of commitments plus another $20b in bridge exposure) and their CDO/equity ratio blows up.
it only follows that treasury is showing itself to be ideologically consisitent with the vast majority of the governement. We live in a socialist state. Those who didn;t participate in the binge yet again are punished. The governement is intent on perpetuatuing unaffordable housing which in the end is unsistainable. The dam is leaking like a siv and one plug will not fix the issue. Deflation HAS TO HAPPEN, that is unless the fed is ready to usher in mandatory wage increase. Anyway you cut it, the Fed is helpless and the emperor will reveal itself soon enough. This is like watching a a self destructive alcohalic publicly humiliate themeelf with repeated floggings. Oh yeah Down 20,000 by June.
those who dont like helping those homewowners who's been fooled by crooks loan officer because of that YSP instead those people could qualify for prime they where given toxic loan by this crook loan officers for his own interest only and to the fucking appraisser who inflate the home value to all you haters about the modification fuck all you mutha fuckers i hope you all burn in hell you guys know who you are.
I posted this before but here it is again since my FICO limit question was answered.
Gaming FICO:
Per FICO website, FICO is based on:
35% payment history
30% amounts owed vs available credit
15% length of credit history
10% from new credit
10% type of credit
So, here is how you game the system:
1) Leave your payment history alone and keep your payments current.
2) Take cash advances to push your available credit to approximately 95%. This will cost money so try to minimize yoru costs. Put the money into a savings account and do not spend it.
3) Close all long term accounts that you are not using. Shortens your credit history age.
4) Apply for massive amount of credit. Apply for everything.
5) Apply for every crappy store credit card that you can.
Of course, this will drastically lower your credit score and allow you to easily go under the required FICO score. After your bank allows your morgage rate to freeze, here is how you fix it:
1) Pay off all your cash advances with the money from the savings account.
2) Reopen your previous long accounts by calling your companies.
3) Close all the other accounts that you opened.
According to Mish:Servicer is to determine for these borrowers: (1) owner occupancy based "solely" on borrower's representations at origin [note many of whom actually made gross misrepresentations] and on other information known by or readily available to servicer;...
Um, if they aren't obligated to really determine owner occupancy, then there is going to be a lot of speculator bailouts going on... that is going to sour the public on this plan very quickly...
Hope you are feeling better now, T!
Thanks, dear. I'm better, but I am pretty spacey. That either makes me a ideal candidate for discussing economic policy or it doesn't . . . .
Apparently, an email to CNBC from S&P indicated that this effort is likely to negatively impact sub-prime MBS ratings.
Tanta, could you please check out this article by Herb Greenberg? It might change some of the tenor of your article, as well as inspire future posts.
Straight Talk on the Mortgage Mess from an Insider - Herb Greenberg - MarketWatch
I find it hard to believe that mods would perform better in this market climate than that of a couple years ago. I suppose they could be more careful about who they give mods to, but that seems even harder to believe.
"If that is true, then performance of modified loans can be improved by something that is well within the control of the industry."
true... except it looks like most proposals are looking more at doing blanket mods instead, like freezing EVERY mortgage that meets certain criteria (like the FICO holy grail)
oh well...
Regarding the Greenberg blog and similar reporting...
When do we begin actively discussing insolvency? If one accepts the emerging reality that this paper is worth far less than balance sheet valuations, then the derivative issue of solvency is THE major issue here.
Do we have to wait for the auditors to illuminate the obvious?
No doubt those past mods were done in a case by case basis for borrowers with temporary cash flow difficulties.
What is "temporary" about:
1) having little of no equity in your home
2) having a DTI of 45%
3) relying on periodic cash-out re-fi's to pay credit card bills
4) owning a home that costs twice as much as renting a similar home?
OT -- Toll post an $82M loss.
Another quote to remember from Bob Toll: "1974 was perhaps rougher, but the difficult times only lasted one year."
Forbes.com File Not Found
From the commentary I heard it sounds like future bailout plans involve issuing munis to provide hard-core taxpayer-funded government cash money bailouts.
Then the Fed can monetize these to print money after congress amends their powers to use whiteout on their balance sheets wherever convenient.
Look, another way of making my point is that in 2005 and earlier, the primary "workout" for a nonperforming (or about to default) loan was refinance. Not mods; we just didn't do very many mods in the years since the last major RE bust.
So yes, if you want an idea of how likely future defaults are, look at the success of some of the refis we made for borrowers in trouble, a/k/a subprime loans. They aren't doing so hot. But they are not yet defaulting at 60%.
I am merely trying to remind everyone that we were supposed to have just learned the hard way not to rely on "statistics" based on a very different marketplace. Mods done in 2005 and prior would have been the very bottom of the barrel, most adversely-selected group of people who still managed to qualify for something short of foreclosure. That's all I'm saying.
Currently, we have a total shutdown in the subprime and Alt marketplace into which the borrowers of 2005 and prior used to refinance. Therefore we will end up modifying people who could have refinanced in earlier years. I require evidence, not simple religious faith, that this group will perform like a 2005-era group of modification candidates. That's all. I share a lot of people's concerns about the Paulson Plan, but let's not get dogmatic.
What's a borrior?
I thought the President's speech was highly effective. He needed to move the spotlight from "greedy" Wall Street to the "do nothing" Congress and inefficient agencies he did so. Political speechs are one of Mr Bush's few competences. There was a brief mention of investors and servicers but the rest of the financial chain from originators to hedge funds and rating agencies were not present. Basically the message was that poor people got into trouble again which has caused a confidence problem in an otherwise strong economy which would not have happened if the (Democratic) Congress had acted when asked months ago.
This will be an interesting political battle - more about image than substance. Expect Congress to modify Bush's legislation which he will veto and claim the "do nothing" Congress is refusing to help poor people.
Let the war begin!
The OTS posted the National Housing Forum videos last night:
NHF Video Webcast
S&P Says Paulson Plan to Freeze Mortgages May Cause Downgrades
By Pierre Paulden
Dec. 6 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson's plan to freeze some subprime mortgage rates in an effort to stop a wave of foreclosures could lead to ratings cuts on some mortgage bonds, Standard & Poor's said.
``Simply freezing interest rates on some U.S. first-lien subprime mortgage loans would have a negative impact'' on ratings of some residential mortgage-backed securities, analysts at New York-based S&P wrote in a report today.
[snip]
Unsympathetic, there isn't much in Hanson's views that differ from things I have been saying for years.
Where there are differences--and David Pearson, I think this also speaks to your post--I am aware that there are parts of the country that are not California and Florida.
If you live around people who max out the cards and do the cash-outs to buy the toys in a very expensive part of the country, you are likely to think that is absolutely typical and all borrowers have done that.
If you live in flyover and realize that a lot of people cashed out to pay for medical care or tide them over between plant layoffs, as well as some people just blowing money, you tend to see the bag as more mixed and generalizations as less easy to make.
No analysis of the situation can, obviously, ignore CA and FL. But I get tired of those markets being considered the center of the universe.
Tanta- I know you've just gotten a jolt of adrenaline from these exciting recent events that are crying out for someone with your exact (probably unique) combination of talent(s), knowledge, judgement, and experience; but don't let the adrenaline rush fool you: Take good care of yourself. It's obvious we're going to need you even more in the days to come. Then again, Dum vivimus vivimus. Vale
So now Congress will follow up with the money. That will be interesting as many citizens are opposed to any bailout, direct or indirect. I sent my opposition emails.
Let housing prices fall!
If your primary concern is working people who are having trouble finding affordable homes, then let housing prices fall!
Nothing would be more beneficial to the vast majority of Americans, who simply cannot afford real estate prices as they are in most major markets.
For those who do own a home on a subprime mortgage, and who lose it, they will be BETTER OFF IN THE LONG RUN if housing prices fall.
And housing prices won't ever fall to rational levels again if the govt and Wall Street keep coming up with "bailout" plans aimed at preserving the value of institutionally helf bonds.
(They may use mincing rhetoric to say that what they really care is working families, it's not true. What they really care about is their bond portfolios.)
Let housing prices fall! Let Wall Street take its losses and let the market bring housing back to rational price levels.
And let people who get foreclosed on live in an economy where capitalistic forces are actually allowed to work. That way, they'll be able to afford to buy a house in a couple of years that has a mortgage they can actually afford to pay off.
I was speaking with a servicer last week that started 12-month mods back for borrowers with payment reset back in October 2006 and were just assessing performance of their program.
They found that 20 percent of mods defaulted in one year.
Of those that did not modify, 40 percent defaulted.
The coasts are not the center of the universe, but nonetheless, they are where the massive bulk of the nation's residential real estate value now sits. So, what happens there is more important to the general economy.
And it's true, we are in uncharted territory here. However, considering your post of a couple of days ago about the Boston Fed's report--that negative HPA is a key driver of foreclosure--the data we do have about the post-2005 world are not encouraging.
Just wait until the gubmit rewrites social security and all those other entitlements with a stroke of the pen.
So much for contract law
Boys, boys, so far the government has not passed a law or done anything by force. It has simply brokered a deal, one that may well fit inside existing contract terms.
How can congress modify the terms without compensating investors. Ist that not a 5th Amendment taking?
I think it all comes down to stated income. Mods of stated income loans without income verification would likely result in extremely high re-default rates. So if they limit the program to full-doc, that's a big step. Let's hope so.
Markel,
Actually all that has been accomplished so far is a press conference!
The technical session that is underway sans cameras ATM will tell the tale of this effort, methinks.
American Banker has details up now:
Details of the Bush Plan - American Banker Article
Free sign up this week.
Who are they trying to sell this plan to? Is "keeping families in their homes" really the best choice?
Edit: The above article was the Bush plan as of last Wednesday, final details may differ.
While still subject to change, this document covers the deal the Bush administration was negotiating with industry representatives late Wednesday.
Annnnnnnnnd,
Yet another week (17th straight?) of decline for ABCP, down -$23 billion for the week ending December 5th. Total CP down -$10.2 billion.
FRB Commercial Paper Outstandings
"If FICO is 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
Can someone 'splain the logic behind the above to me, I'm trying to figure out why they would assume income in one instance but not in the other. It's like they dont want to know how the low fico low doc people are making payments, just that they are and go with it. Is it to take the load off the servicers? Prevent the massive number of fraud originations to be revealed?
I'm all messed the above quote should be:
If FICO is 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts
Isn't this announced effort simply better organizing and streamlining a process the servicer can pursue anyway?
Dagnabbit, I promist to use preview this time (the less than greater than signs are messing up Haloscan):
If FICO is LESS THAN 660 and is not 10% or more higher than FICO at origination, borrower is considered to meet the FICO test and servicer generally won't determine current income
If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts
If a homeowner sticks it out 2 years and then does the walk away and the house eventually sells for less than the mortgage amount, would capital gain tax be due if that amount is less than $250,000?
Bush gave out the wrong telephone number. No kidding.
I think it all comes down to stated income. Mods of stated income loans without income verification would likely result in extremely high re-default rates. So if they limit the program to full-doc, that's a big step. Let's hope so.
Which gives you a smaller universe to start with, and likely better success rates, but does less to trim the number about to FC. I'm in favor of doing it this way, but I think it will have less impact than the rhetoric suggests.
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
- Macbeth, Act V, Sc V -
Cal -
The "FICO test" dictates whether or not they examine current income.
In short - if X credit is still crap, no need to worry about their current income. However, if credit was decent to begin with, or is better now, current income must be looked at (ie. in case they don't NEED the Freeze, in theory)
My question is...which FICO to use? Which bureau, if incomes changed (e.g. co-x now is the breadwinner, normal UW guidelines say use her middle FICO).
This is going to be a clusterfuck.
Shnapster, I understand that they wouldnt look at incomes under 660 FICO..
I dont understand WHY they wouldnt look at incomes for FICOs under 660
"Isn't this announced effort simply better organizing and streamlining a process the servicer can pursue anyway?" -- Allen C.
I think that's basically right--all I see here is (1) a PR effort directed at borrowers to get them to agree to the mods and (2) some legal cover for the servicers if they're sued by investors in particular tranches who feel their interests are damaged by the mods. Doing mass modifications rather than individually analyzing each loan leaves them a bit more exposed on that score.
I think the servicers would probably win those suits anyway, as it seems to me they could put together a plausible argument that the mods are intended to maximize the value of the pool, but they'd rather not even have to defend them if possible.
No analysis of the situation can, obviously, ignore CA and FL. But I get tired of those markets being considered the center of the universe.
This may be more about CA and Florida than you think. Frm the MBA:
While California and Florida together have 36.4 percent of all of the prime ARM loans in the country, they had 42.4 percent of the nations foreclosure starts for prime ARMS. Similarly, California and Florida together have 28.1 percent of the subprime ARMs and 33.7 percent of foreclosure starts for subprime ARMs.
"If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
As I understand, the plan does not intend to help any prime borrowers. So, borderline borrowers who are improving their credit records are also suspected to be "prime" and they will be subject to more scrutiny.
But, the credit scores are quite easy to manipulate, specially in the negative side.
I believe the logic goes something like...
Presuming we have a mandate that time is of the essence and resources are limited...there is a very low likelihood that someone who had crap credit, and still has crap credit, has improved their income situation dramatically, unless they hit the lotto.
even if they did, we won't concern ourselves with that small subset, in the interest of getting as many of these mods done as quickly and efficiently as possible.
Wow! Cramer of all people.
Cramer just stated on CNBC that FNM and FRE are insolvent.
Seems many are concerned over homeowner bailouts when while the GSEs are clearly overexposed.
So the logic would be to take the load off the servicers.
I just think this group also has the highest likelihood of fraud / bad originations.
This thing seems like just as much a legal cover for the bad originators than it is anything else. A Countrywide type company liability just went wayyy down (they originate, sell the loan and retain the servicing righs). The fraud that would normally be uncovered during a normal due diligence for modification will now not be uncovered. No wonder their stock jumped.
Cramer just stated on CNBC that FNM and FRE are insolvent.
Cramer must be a secret member of Stein's GS cabal.
Deflated GDP...check.
Fake employment...check.
The big freeze...check.
So what is on the PPT agenda for Fri?
Tanta:
Regarding the re-default rate. Yes they were for other reasons than now (back then, lost jobs, illness).
However, prior to 2005 the loan mods had some equity (versus none or negative now) and were done in a rising HPA envirnoment. Now HPA is going down and expected to go down more.
IF you rate is being freezed and you have no (negative) equity and your house value is declining, shouldn't we expect really higher re-dafault rates?
Foreclsure now means less pain for investors than foreclusre later at lower prices. How do we get the credit market better with this hanging over everyone's head?
So what is on the PPT agenda for Fri?
That one's too easy...
"can it get any nerdier than that? Can it? Sheesh"...
I am glad to finally find a group of like minds (mortgage nerds). Up until my discovery of this blog, it has been a lonely existence of inner dialogue.
I am amused by those whose greatest fear is that not enough people will be thrown out of their homes fast enough. Have patience. The Super SIV and the mortgage freeze plans are nothing more than election year spit polish. The Democrats will be left holding the bag in 2009. Mission accomplished. 2009 should be a big year for the trailer and truck rental business.
I heard on a finance radio show the following:
Man sells his home to two school teachers in 1995 for $625k. No seller financing. Just a regular P&S.
A few months ago, the couple called him and wanted to renegotiate the price.
That has to be true. Who could make that up?
When do we begin actively discussing insolvency?
Right Now:
The GDI in 1929-1933 took stocks down to 11% of 1928/9. That is 89% off. 80% off isn't marginally better at all. Pretty much the same.
Numbers I see are this:
Year,Total CDO Market,% MBS', MBS' Share
2002 77.5 40% 31
2003 81.0 33% 27
2004 123 43% 53
2005 188 52% 98
2006 267 49% 131
In Billions.
I strongly suspect a huge run to the exits as the CDO's lose 80% of their value.
That would be: o.80 X 737 = 589 Billion in CDO losses alone.
For MBS' CDO losses that would be o.80 X 340 = 272 Billion.
Total Market Cap of the big banks and brokerage houses is just under 2,000 Billion.
Bank\tLevel 3 assets\tEquity\tRatio
Morgan Stanley\t$88 billion\t$35 billion\t2.51
Goldman Sachs\t$72 billion\t$39 billion\t1.85
Lehman Brothers\t$35 billion \t$22 billion\t1.59
Bear Stearns\t$20 billion\t$13 billion\t1.54
Citigroup\t$135 billion\t$128 billion\t1.05
Merrill Lynch\t$16 billion\t$42 billion\t0.38
If the Level 3's are off by 80% (and they [i][b]might[/b][/i] not all be CDO's and sludge), then these houses are insolvent unless they have shorted themselves sufficiently to bail out their own bacon:
Morgan Stanley (-35.4), Goldman Sachs (-18.6), Lehman Brothers (-6.
, Bear Stearns (-3.
.
Looking ok are:
Citigroup (+17.6), Merrill Lynch (+29.6).
Top CDO Classes May Lose 80 Percent, Barclays Says (Update2) - Bloomberg.com
My analysis may lack a few things, but I believe the gist is correct.
Top CDO Classes May Lose 80 Percent, Barclays Says (Update1)
By Jody Shenn
Dec. 6 (Bloomberg) -- U.S. mortgage assets in collateralized debt obligations have lost so much value that the top classes of the securities may be worth as little as 20 cents on the dollar in a liquidation, Barclays Plc analysts said in a report.
About 20 percent to 30 percent of principal would be covered for the ``super senior'' portions of mezzanine asset-backed bond CDOs, which mainly contain mortgage bonds and other CDOs initially assigned low investment-grade ratings, Barclays said in the report yesterday. The senior-most classes of CDOs containing highly rated asset-backed bonds would recoup 30 percent to 65 percent, it said.
Determining accurate prices for the collateral is hard to do, the New York-based analysts, Joseph Astorina, Elena Warshawsky and Wei-Ang Lee, said. ``We believe our methodology is analytically rigorous and represents a good jumping off point,'' they wrote.
Recent writedowns at the world's biggest financial companies including Citigroup Inc., Merrill Lynch & Co., Morgan Stanley and Wachovia Corp. amid a global credit-market seizure were partly related to declines on super-senior CDOs. The losses, sparked by rising U.S. foreclosures, may reach $77 billion, JPMorgan Chase & Co. CDO analysts estimate.
Royal Bank of Scotland Group Plc reported 1.5 billion pounds ($3 billion) of markdowns today linked to credit markets. Canadian I
"If FICO GREATER THAN 660 or current FICO is 10% or more higher than at origination, borrower considered to have FAILED the FICO test and then servicer uses a more detailed analysis to determine borrower's current income/debts"
I think they should have used a FICO cutpoint of 666.
There's all sorts of quality assets that need to be classed @ Level 3, not just crappy CDO's, so that might lead you astray.
Now Citi has a higher percentage of their Level 3 assets tied up in CDOs. In a vacuum, no big deal.
But add in the reserves they'll have to retain to account for all their SIV and pier loan/PE exposure(likely $120-150b range of commitments plus another $20b in bridge exposure) and their CDO/equity ratio blows up.
Food for thought.
it only follows that treasury is showing itself to be ideologically consisitent with the vast majority of the governement. We live in a socialist state. Those who didn;t participate in the binge yet again are punished. The governement is intent on perpetuatuing unaffordable housing which in the end is unsistainable. The dam is leaking like a siv and one plug will not fix the issue. Deflation HAS TO HAPPEN, that is unless the fed is ready to usher in mandatory wage increase. Anyway you cut it, the Fed is helpless and the emperor will reveal itself soon enough. This is like watching a a self destructive alcohalic publicly humiliate themeelf with repeated floggings. Oh yeah Down 20,000 by June.
those who dont like helping those homewowners who's been fooled by crooks loan officer because of that YSP instead those people could qualify for prime they where given toxic loan by this crook loan officers for his own interest only and to the fucking appraisser who inflate the home value to all you haters about the modification fuck all you mutha fuckers i hope you all burn in hell you guys know who you are.
I posted this before but here it is again since my FICO limit question was answered.
Gaming FICO:
Per FICO website, FICO is based on:
35% payment history
30% amounts owed vs available credit
15% length of credit history
10% from new credit
10% type of credit
So, here is how you game the system:
1) Leave your payment history alone and keep your payments current.
2) Take cash advances to push your available credit to approximately 95%. This will cost money so try to minimize yoru costs. Put the money into a savings account and do not spend it.
3) Close all long term accounts that you are not using. Shortens your credit history age.
4) Apply for massive amount of credit. Apply for everything.
5) Apply for every crappy store credit card that you can.
Of course, this will drastically lower your credit score and allow you to easily go under the required FICO score. After your bank allows your morgage rate to freeze, here is how you fix it:
1) Pay off all your cash advances with the money from the savings account.
2) Reopen your previous long accounts by calling your companies.
3) Close all the other accounts that you opened.
According to Mish:
Servicer is to determine for these borrowers: (1) owner occupancy based "solely" on borrower's representations at origin [note many of whom actually made gross misrepresentations] and on other information known by or readily available to servicer;...
Um, if they aren't obligated to really determine owner occupancy, then there is going to be a lot of speculator bailouts going on... that is going to sour the public on this plan very quickly...