I am completely confused... If Fannie is reporting a growing number of losses on their existing portfolio, how is it that they will be able to take on even more exposure to the Jumbo market, which the markets seem to be so enthused about?
Or are the reserve requirements being lowered for Fannie such that even with the losses they are sustaining they will be able to expand their portfolio anyway since they don't need as much capital on hand?
Or is it that Fannie can just spin off mortgages into investment securities that don't require any of it's own capital whatsoever?
I just don't understand how Fannie can help much with the Jumbo market if they are reducing their over-all portfolios. It wouldn't seem to help if Fannie bought a whole bunch of Jumbos only at the expense of turning down many more non-Jumbo loans.
What a sneaky way to do a taxpayer bailout -- give Fannie and Freddie plenty more rope to hang themselves. Then step in and honor that implicit government guarantee on their obligations.
Additionally, for loans originated in 2006 and 2007, we transitioned to a one-year default curve and subsequently to a one-quarter default curve to reflect the increase in the incidence of early payment defaults on these loans.
A one-quarter default curve? Isn't that kind of admitting that a fair chunk of the borrowers couldn't even make one payment?
sorry to post again but could you pls tell me your take on it ??
since i am from Europe i would loke to know your opinion and what has changed since then???
I would also like to know this:
Wouldnt any bail out scenario fell foul of WTO rules???
I cant imagine other Countrys watching a big Bailout and then seeing American Banks going on a shopping spree worldwide to pick up Banks in other Countrys that didnt get one...
A one-quarter default curve? Isn't that kind of admitting that a fair chunk of the borrowers couldn't even make one payment?
That is exactly what it is.
Furthermore, loss severities will no longer use averages beyond the last quarter. That's saying that foreclosure recoveries are dropping so fast that any attempt to average over more than the last quarter would hopelessly skew the number.
Too bad the data they use don't go back far enough to include the most appropriate period for modeling our ongoing house price bust, that being the Great Depression.
So even with "modification, long-term forbearance or repayment plans" they had 40% of them delinquent again within two years (based on 2001-2005 numbers).
That doesn't sound good for the various "save the homeowner" plans that get floated around. Half of them will be delinquent in two years again anyway.
I was in my bank the other day (BofA) and I commented on how much bad debt they had taken on with buying Countrywide, the bank Manager said "Oh it won't affect us, we are too big to fail...and now we have more (mortgage) products to offer our customers"
based on the period 2001 to 2005, has been that approximately 60% of these loans remain current or have been paid in full
What fraction of that 60% were "paid in full" because either the home was sold or the loan refinanced? Did they report the split between those paid off and those current?
Fannie said on their call no bundling of jumbo's with regular conforming. They admit the market may not like that and that they would have to offer higher yields on the jumbo-only pools.
What fraction of that 60% were "paid in full" because either the home was sold or the loan refinanced?
It really wouldn't do you any good to know that unless you also knew the voluntary prepayment rate (sale or refi) for all loans in the comparable period.
I'm assuming Fannie doesn't consider Fast&Easy loans as Alt-A even though it technically is a reduced doc product. I also wouldn't think that they would consider their high LTV low credit score EAs as subprime. I would expect these products to act like Alt-A and subprime, are they treated as such?
I hope the person assigned to talk them down lifts the megaphone and with dripping sarcasm intones, "There has never been a better time to buy or sell a home".
yawp, I never learned the new math, but I still don't think 40% is 'half'.
I'd say that is pretty damn successful. Keep in mind that until recently, mods/forbearance/repay plans were intended to remedy loans deemed to be dealing with a temporary disruption (like Katrina victims), not for those with a fundamental problem (like overextention). Also, home prices were still going UP during that period, and credit was relatively easy to come by for those wishing to refinance. Many of those in that 60% group went out and got subprime loans.
As one waiting for some time on the sidelines for a sane price on a home, I'm well and truly disgusted. Anyone care to estimate how much price support these recent moves with the gse's will provide the housing market?
It's interesting that Fannie is trying to be as fair as possible in evaluating risk - e.g. the quarter-by-quarter assessment, so all those good loans from 2003 don't bias the estimates from 2007. All the same, they're probably really optimistic. 2008 will be the first time in all history with millions of Americans deeply underwater on their mortgages. Even projections from 2007 will be optimistic.
We estimate that Alt-A mortgage loans held in our portfolio or Alt-A mortgage loans backing Fannie Mae MBS, excluding resecuritized private-label mortgage-related securities backed by Alt-A mortgage loans, represented approximately 12% of our total single-family mortgage credit book of business as of December 31, 2007
Um - isn't Fannie's capital something like 2% of total guaranteed loan value? Based on the defaults from that horrifiying WAMU securitization that's been cited, won't the Alt-A alone be enough to bring Fannie down?
My point (picosec@2:10) regarding the 60% "paid off or current" was that, in the extreme, if all of that 60% were "current" then the 9% foreclosed would be 9% of the current batch. At the other extreme, if all of that 60% had been paid off, then 22% of the current batch would be in foreclosure. Wouldn't it be useful to know where, between 9% and 22% the foreclosure of the current portfolio lies?
girlbear writes:
I was in my bank the other day (BofA) and I commented on how much bad debt they had taken on with buying Countrywide, the bank Manager said "Oh it won't affect us, we are too big to fail...and now we have more (mortgage) products to offer our customers"
I believe the Titanic was said to be unsinkable as well.
Wouldn't it be useful to know where, between 9% and 22% the foreclosure of the current portfolio lies?
All this statistic is saying is, what was the status of a worked-out loan 24 months following the start of the workout?
So it does not matter how many of the 60% are still on the books as current versus paid off within 24 months (while current). That would not affect the fact that at 24 months, 6% of these loans were foreclosed.
Yoringe
American's take on Presidential speeches is to ignore them. They are all theater for the boobs.
The brain damaged may still view them and that is a problem as there are still a lot of the brain damaged around. All those drugs in the 60s and 70s did a lot of damage.
Good Luck and Good Night.
Nice to see that exposition of counterparty risk, ("Together, Bank of America and Countrywide accounted for approximately 32% of our single-family business volume in 2007." ), but one wonders what the real exposure is to counterparties in the derivative market...that tied up 2500 accountants for months last time IIRC.
Of course, those accountants either don't know or won't risk their reputation (burp!) outlining a doomsday scenario should certain interest regimes follow in the next few quarters.
Methinks a little datapoint cherry-picking is going on.
Look. Loans that got a workout in 2001 will as of today have a 6-7 year history after that workout. Loans that got a workout in 2005 will have a 2-3 year history. Loans that got workouts after 2005 will have less than two years.
All they are doing here is presenting one metric, namely, the two-year history metric. It wouldn't be very helpful to compare the seven-year history of the 2001 batch with the one-year history of the 2007 batch.
So they simply picked all the ones for which they had a two-year history, going back to 2001, and reported the same time-period disposition for each one of them.
"Approximately 20% of our conventional single-family mortgage credit book of business had an estimated mark-to-market LTV ratio greater than 80% as of December 31, 2007. Of that 20% portion, over 62% of the loans were covered by credit enhancement."
"Approximately 20% of our conventional single-family mortgage credit book of business had an estimated mark-to-market LTV ratio greater than 80% as of December 31, 2007. Of that 20% portion, over 62% of the loans were covered by credit enhancement."
This means that 20% of the loans they have today have a current LTV over 80%.
Of those loans, 62% had a current LTV over 80% when they were originated, so that means they had private mortgage insurance on them.
The other 38% were originated at 80% or less, but because of house price depreciation, they're currently over 80%. But they don't have MI on them.
Those loans that didn't have MI could have been piggybacks, or they could have been true 20% down deals.
These and other key institutional counterparties may become subject to serious liquidity problems
Like I've said before, the key to reading these documents is replacing every occurrence of "may" and "could" with "will". That'll tell you exactly what the future holds.
So in this context "credit enhancement" refers to a loan that has mortgage insurance - as opposed to a pool where credit enhancement simply means they (the securitizer) backs $100 million notional with $110 million in mortgages?
It is the standard practice of companies such as Redwood Trust, Downey Savings, and Bank United to report LTV on loan pools after adjusting for MI.
Perhaps this is deceptive since likelihood of default on a 80% LTV mortgage with 20% equity owned by the homeowner has a much lower chance of default than an LTV of 100% with 20% MI, but these get reported exactly the same in average LTV on loan pools.
Average effective guaranty fee rate (in basis points)(16)* 2007 23.7bp
Credit loss ratio (in basis points)(17)* 2007 5.3bp
They just bumped the rates by 25bp. Their fee income was about $5 billion. The historical loss ratios for 2006 and earlier was around 1 bp.
So aren't they in a position to book a lot of losses this year and still break even? And if so, they will be in a position to continue to raise fees more and tighten up on underwriting.
Of course you would want to accurately accrue for losses, but short of that, a 'pay as you go' could work for them rather then a govt. bailout. Any cyclical business will post results that lag the economics of their business, since they are booking based on the rear view mirror. They are obviously under capitalized, but are not a normal company. If they operated strictly as a private company, they would assert their pricing power at this point in the cycle. It looks like they are politically constrained from that approach. However, they can post losses roughly equal to income and 'get well' on a calendar year rather then a vintage year basis. Plus as long as they are posting large losses, they will be able to maintain or possibly even increase fees.
"For example, we recently introduced a new HomeSaver Advancetm initiative, which is a loss mitigation tool that we began implementing in the first quarter of 2008. HomeSaver Advance provides qualified borrowers with an unsecured personal loan in an amount equal to all past due payments relating to their mortgage loan, allowing borrowers to cure their payment defaults under mortgage loans without requiring modification of their mortgage loans. By permitting qualified borrowers to cure their payment defaults without requiring that we purchase the loans from the MBS trusts in order to modify the loans, this loss mitigation tool may reduce the number of delinquent mortgage loans that we purchase from MBS trusts in the future and the fair value losses we record in connection with those purchases."
The part I liked was the about how there was a danger they would lose market share. Under the current circumstances, where they are almost the only game in town, that seemed a little unlikely.
Well, it's a good thing they will be providing loans for even more overpriced McMansions considering the losses they already have! When in a hole, dig faster and use a bigger shovel! Right...
A Federal Judge ruled last week that a reasonable person would not find that Fannie Mae had violated SEC regulations if and when it recorded false information to its general ledger.
I thought losses were "market dislocations"
MS
I am completely confused... If Fannie is reporting a growing number of losses on their existing portfolio, how is it that they will be able to take on even more exposure to the Jumbo market, which the markets seem to be so enthused about?
Or are the reserve requirements being lowered for Fannie such that even with the losses they are sustaining they will be able to expand their portfolio anyway since they don't need as much capital on hand?
Or is it that Fannie can just spin off mortgages into investment securities that don't require any of it's own capital whatsoever?
I just don't understand how Fannie can help much with the Jumbo market if they are reducing their over-all portfolios. It wouldn't seem to help if Fannie bought a whole bunch of Jumbos only at the expense of turning down many more non-Jumbo loans.
wait till rationality hits the fan...
and OFHEO feels that now is the time to increase leverage?
What a sneaky way to do a taxpayer bailout -- give Fannie and Freddie plenty more rope to hang themselves. Then step in and honor that implicit government guarantee on their obligations.
Brilliant, if not very subtle.
based on the period 2001 to 2005, has been that approximately 60% of these loans remain current or have been paid in full
60%? Not too shabby. but...
Anydoby wanna bet on what happens to that percentage once we are able to look back on the period 2006-2007?
Additionally, for loans originated in 2006 and 2007, we transitioned to a one-year default curve and subsequently to a one-quarter default curve to reflect the increase in the incidence of early payment defaults on these loans.
A one-quarter default curve? Isn't that kind of admitting that a fair chunk of the borrowers couldn't even make one payment?
have to upgrad from off topic to on topic:
YouTube - Nixon Ends Bretton Woods International Monetary System
sorry to post again but could you pls tell me your take on it ??
since i am from Europe i would loke to know your opinion and what has changed since then???
I would also like to know this:
Wouldnt any bail out scenario fell foul of WTO rules???
I cant imagine other Countrys watching a big Bailout and then seeing American Banks going on a shopping spree worldwide to pick up Banks in other Countrys that didnt get one...
Good Night and good luck
)
A one-quarter default curve? Isn't that kind of admitting that a fair chunk of the borrowers couldn't even make one payment?
That is exactly what it is.
Furthermore, loss severities will no longer use averages beyond the last quarter. That's saying that foreclosure recoveries are dropping so fast that any attempt to average over more than the last quarter would hopelessly skew the number.
Too bad the data they use don't go back far enough to include the most appropriate period for modeling our ongoing house price bust, that being the Great Depression.
So even with "modification, long-term forbearance or repayment plans" they had 40% of them delinquent again within two years (based on 2001-2005 numbers).
That doesn't sound good for the various "save the homeowner" plans that get floated around. Half of them will be delinquent in two years again anyway.
another point to ponder...
Does the market price in a heavyli armed American Population????
so many loose ends, so short a time...
I was in my bank the other day (BofA) and I commented on how much bad debt they had taken on with buying Countrywide, the bank Manager said "Oh it won't affect us, we are too big to fail...and now we have more (mortgage) products to offer our customers"
based on the period 2001 to 2005, has been that approximately 60% of these loans remain current or have been paid in full
What fraction of that 60% were "paid in full" because either the home was sold or the loan refinanced? Did they report the split between those paid off and those current?
In all fairness, most bank managers know very little outside of the retail business. Just sayin'.
Hmmm: they are holding or backstopping $74B in MBSs backed by Alt-A and subprime mortgages.
That, against $49B in equity.
Hope that those MBSs don't drop in value by 1/3. Otherwise, BK.
I think that could happen as soon as year-end.
Tanta,
Fannie said on their call no bundling of jumbo's with regular conforming. They admit the market may not like that and that they would have to offer higher yields on the jumbo-only pools.
What fraction of that 60% were "paid in full" because either the home was sold or the loan refinanced?
It really wouldn't do you any good to know that unless you also knew the voluntary prepayment rate (sale or refi) for all loans in the comparable period.
They admit the market may not like that and that they would have to offer higher yields on the jumbo-only pools.
Oh, my. Has anyone looked out on the ledge to see if NAR is trying to jump?
I'm assuming Fannie doesn't consider Fast&Easy loans as Alt-A even though it technically is a reduced doc product. I also wouldn't think that they would consider their high LTV low credit score EAs as subprime. I would expect these products to act like Alt-A and subprime, are they treated as such?
I hope the person assigned to talk them down lifts the megaphone and with dripping sarcasm intones, "There has never been a better time to buy or sell a home".
Either that or "Jump!"
yawp, I never learned the new math, but I still don't think 40% is 'half'.
I'd say that is pretty damn successful. Keep in mind that until recently, mods/forbearance/repay plans were intended to remedy loans deemed to be dealing with a temporary disruption (like Katrina victims), not for those with a fundamental problem (like overextention). Also, home prices were still going UP during that period, and credit was relatively easy to come by for those wishing to refinance. Many of those in that 60% group went out and got subprime loans.
wow.
that is easily the worst document that fannie has ever put out.
If Yun were out standing on the ledge, I might actually believe for the first time that he sees "a bottom."
cd
and another off topic /on topic:
XXXIV. THE ECONOMICS OF WAR: War and the Market Economy
hmmm.. who would have thought...
good night and good luck...
As one waiting for some time on the sidelines for a sane price on a home, I'm well and truly disgusted. Anyone care to estimate how much price support these recent moves with the gse's will provide the housing market?
PP
"those who dont learn from History are bound to repeat the mistakes"
someone somewhere in time......
It's interesting that Fannie is trying to be as fair as possible in evaluating risk - e.g. the quarter-by-quarter assessment, so all those good loans from 2003 don't bias the estimates from 2007. All the same, they're probably really optimistic. 2008 will be the first time in all history with millions of Americans deeply underwater on their mortgages. Even projections from 2007 will be optimistic.
We estimate that Alt-A mortgage loans held in our portfolio or Alt-A mortgage loans backing Fannie Mae MBS, excluding resecuritized private-label mortgage-related securities backed by Alt-A mortgage loans, represented approximately 12% of our total single-family mortgage credit book of business as of December 31, 2007
Um - isn't Fannie's capital something like 2% of total guaranteed loan value? Based on the defaults from that horrifiying WAMU securitization that's been cited, won't the Alt-A alone be enough to bring Fannie down?
My point (picosec@2:10) regarding the 60% "paid off or current" was that, in the extreme, if all of that 60% were "current" then the 9% foreclosed would be 9% of the current batch. At the other extreme, if all of that 60% had been paid off, then 22% of the current batch would be in foreclosure. Wouldn't it be useful to know where, between 9% and 22% the foreclosure of the current portfolio lies?
girlbear writes:
I was in my bank the other day (BofA) and I commented on how much bad debt they had taken on with buying Countrywide, the bank Manager said "Oh it won't affect us, we are too big to fail...and now we have more (mortgage) products to offer our customers"
I believe the Titanic was said to be unsinkable as well.
She was unsinkable till she actual sunk!!!
Wouldn't it be useful to know where, between 9% and 22% the foreclosure of the current portfolio lies?
All this statistic is saying is, what was the status of a worked-out loan 24 months following the start of the workout?
So it does not matter how many of the 60% are still on the books as current versus paid off within 24 months (while current). That would not affect the fact that at 24 months, 6% of these loans were foreclosed.
Sorry, 9%.
our performance experience after 24 months following the inception of these types of plans, based on the period 2001 to 2005
Based on the period of 1995-1999, Dot.com stocks, including Webvan, Pets.com, Lucent and Nortel were all great buys. After that? Not so good...
Methinks a little datapoint cherry-picking is going on.
Yoringe
American's take on Presidential speeches is to ignore them. They are all theater for the boobs.
The brain damaged may still view them and that is a problem as there are still a lot of the brain damaged around. All those drugs in the 60s and 70s did a lot of damage.
Good Luck and Good Night.
Nice to see that exposition of counterparty risk, ("Together, Bank of America and Countrywide accounted for approximately 32% of our single-family business volume in 2007." ), but one wonders what the real exposure is to counterparties in the derivative market...that tied up 2500 accountants for months last time IIRC.
Of course, those accountants either don't know or won't risk their reputation (burp!) outlining a doomsday scenario should certain interest regimes follow in the next few quarters.
Methinks a little datapoint cherry-picking is going on.
Look. Loans that got a workout in 2001 will as of today have a 6-7 year history after that workout. Loans that got a workout in 2005 will have a 2-3 year history. Loans that got workouts after 2005 will have less than two years.
All they are doing here is presenting one metric, namely, the two-year history metric. It wouldn't be very helpful to compare the seven-year history of the 2001 batch with the one-year history of the 2007 batch.
So they simply picked all the ones for which they had a two-year history, going back to 2001, and reported the same time-period disposition for each one of them.
Why is that "cherry-picking"?
but one wonders what the real exposure is to counterparties in the derivative market...
You know, one would not want to assume that just because Tanta didn't exerpt part of a 100+ page document, that part doesn't exist.
I did provide the link to the actual document. You might find something in there about exposure in the derivative market . . .
dilbert dogber
well ignore this at your peril because it had real implications and if you actual listen to it you would know
)
Tanta-
Sometimes when you quote reports like this, you bold what you think are the most important parts.
This makes it easier for newbies to approach them. Thanks for the times that you have to time to do that.
I don't understand the following:
"Approximately 20% of our conventional single-family mortgage credit book of business had an estimated mark-to-market LTV ratio greater than 80% as of December 31, 2007. Of that 20% portion, over 62% of the loans were covered by credit enhancement."
Does that mean a piggyback mortgage?
"Approximately 20% of our conventional single-family mortgage credit book of business had an estimated mark-to-market LTV ratio greater than 80% as of December 31, 2007. Of that 20% portion, over 62% of the loans were covered by credit enhancement."
This means that 20% of the loans they have today have a current LTV over 80%.
Of those loans, 62% had a current LTV over 80% when they were originated, so that means they had private mortgage insurance on them.
The other 38% were originated at 80% or less, but because of house price depreciation, they're currently over 80%. But they don't have MI on them.
Those loans that didn't have MI could have been piggybacks, or they could have been true 20% down deals.
These and other key institutional counterparties may become subject to serious liquidity problems
Like I've said before, the key to reading these documents is replacing every occurrence of "may" and "could" with "will". That'll tell you exactly what the future holds.
Thanks Tanta.
Tanta,
So in this context "credit enhancement" refers to a loan that has mortgage insurance - as opposed to a pool where credit enhancement simply means they (the securitizer) backs $100 million notional with $110 million in mortgages?
So in this context "credit enhancement" refers to a loan that has mortgage insurance
In this context we are talking about MI.
Why doesn`t Fannie sell its MBS to Freddie and vice-versa? They would both be making money! Amazing nobody thought about that yet.
Thanks - I thought as much but didn't want to assume anything.
Tanta,
you are not the only one who likes reading financial statements.
I have a new post up dissecting today's earning's report from Newcastle.
Newcastle, one of the USA’s biggest commercial RE investors, posts gigantic loss and decline in book value « Greg’s Law & Economics Blog
Single worst stat: the stock's price is $11 right now, but book value fell by more than $7 per share just in Q4 2007, from $12.66 to $5.59.
Why doesn`t Fannie sell its MBS to Freddie and vice-versa? They would both be making money! Amazing nobody thought about that yet.
um, what?
Broker writes
oh, that explains it.
Be wary of any listing of average LTV.
It is the standard practice of companies such as Redwood Trust, Downey Savings, and Bank United to report LTV on loan pools after adjusting for MI.
Perhaps this is deceptive since likelihood of default on a 80% LTV mortgage with 20% equity owned by the homeowner has a much lower chance of default than an LTV of 100% with 20% MI, but these get reported exactly the same in average LTV on loan pools.
Bacon, that`s an old joke my friend, but it is a little bit too hard for you!
that's for sure.
I dont see anyone really going over the "delinquent status" issue here???
Broker writes:
Why doesn`t Fannie sell its MBS to Freddie and vice-versa? They would both be making money! Amazing nobody thought about that yet.
That's just what a broker would suggest!
Average effective guaranty fee rate (in basis points)(16)* 2007 23.7bp
Credit loss ratio (in basis points)(17)* 2007 5.3bp
They just bumped the rates by 25bp. Their fee income was about $5 billion. The historical loss ratios for 2006 and earlier was around 1 bp.
So aren't they in a position to book a lot of losses this year and still break even? And if so, they will be in a position to continue to raise fees more and tighten up on underwriting.
Of course you would want to accurately accrue for losses, but short of that, a 'pay as you go' could work for them rather then a govt. bailout. Any cyclical business will post results that lag the economics of their business, since they are booking based on the rear view mirror. They are obviously under capitalized, but are not a normal company. If they operated strictly as a private company, they would assert their pricing power at this point in the cycle. It looks like they are politically constrained from that approach. However, they can post losses roughly equal to income and 'get well' on a calendar year rather then a vintage year basis. Plus as long as they are posting large losses, they will be able to maintain or possibly even increase fees.
Here's a classic from FNM's 10-K.
"For example, we recently introduced a new HomeSaver Advancetm initiative, which is a loss mitigation tool that we began implementing in the first quarter of 2008. HomeSaver Advance provides qualified borrowers with an unsecured personal loan in an amount equal to all past due payments relating to their mortgage loan, allowing borrowers to cure their payment defaults under mortgage loans without requiring modification of their mortgage loans. By permitting qualified borrowers to cure their payment defaults without requiring that we purchase the loans from the MBS trusts in order to modify the loans, this loss mitigation tool may reduce the number of delinquent mortgage loans that we purchase from MBS trusts in the future and the fair value losses we record in connection with those purchases."
Words... fail.
The part I liked was the about how there was a danger they would lose market share. Under the current circumstances, where they are almost the only game in town, that seemed a little unlikely.
Well, it's a good thing they will be providing loans for even more overpriced McMansions considering the losses they already have! When in a hole, dig faster and use a bigger shovel! Right...
A Federal Judge ruled last week that a reasonable person would not find that Fannie Mae had violated SEC regulations if and when it recorded false information to its general ledger.
See Department of Labor CASE NO: 2007-SOX-00047