I just saw Macklowe walking with a slew of people in suits on Nassau St. I wonder if that meals a deal will be announced today?
I'd say there are 4 possibilities:
A. Sell a building (likely GM) to Arabs (the only people with money).
B. Reach into deep pockets for more cash.
C. Refinancing comes through some Yankee Bank somehow?
D. File BK
Nowhere else to put it, but just to let you know. In Europe the interbank market yield is now exploding on the long-term maturities (2 years and longer). This will lead very quickly to higher rates for home borrowing.
Dang, near a 50% hike in average claims paid in JUST ONE YEAR!
Um, did the models ever anticipate a jump like that?
I bet not. Hmmm, sounds like tossing Canada out to save their home bacon is an interesting strategy- we shall see if it pays off.
"Our new guidelines, which address loan to value limitations, credit scores and loan documentation, and incorporate volume limitations in distressed markets, led to our reduced fourth quarter production and are expected to further limit production in 2008."
In other words, we are bunkering up and trying to survive. We will write no more crap paper.
Have a nice day! They should have been pulling back in fourth quarter 06.
1. A lump sum percentage of the loan, paid after FC?
It is the lesser of the actual loss (after liquidation of the RE) or the maximum claim amount, which is whatever percentage of the original loan amount the policy stipulated. Actual loss includes principal, accrued interest to liquidation date, and FC/REO expenses.
You can get different coverage levels for various LTVs and loan types. A 95% LTV flow loan, for instance, probably typically carries 30% coverage. That means the maximum claim is limited to $30,000 on a $100,000 loan.
Could we get a quick explanation of what age severity is?
It's just the average dollar amount paid per claim in the period.
The term "severity" is used in contrast to "frequency." So the default rate tells you how frequently they have to pay a claim, and the severity tells you how much they're paying per claim.
From the front page of the National mortgage news:
"Syron: Constraints Won't Deter Jumbo Program
Freddie Mac will start buying jumbo mortgages in bulk, according to the company's chief executive, and he said he will not let capital constraints get in the way of launching an effective jumbo program. "
Doesnt it sound like kind of a big finger to James Lockhart?
So Tanta - do these policies include 'deductibles'... so the very first hit is to the servicer/investor pool... then the insurers step in... then the rest falls back on the servicer/investment pool?
If not why not? That might bring back at least a small measure of moral hazard vigilance. I mean it keeps me from trying to run over deer.
Feb. 14 (Bloomberg) -- Home prices fell in a record number of U.S. metropolitan areas in the fourth quarter, according to a report released today by the National Association of Realtors in Chicago.
The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006, the realtors group said today. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the association said.
Cal - so who is Syron's Daddy? You don't just decide to do sumptin' risky like that unless you know you have friends looking out for you and so you are looking out for them. Any guesses what's up?
I've heard anecdotes of certain MIs not paying some claims based on the fact that the loan was not underwritten to guidelines. Specifically in regard to some AHL loans that went bad. Can the MIs get out of some of this liability with some aggressive due dilignence or is it too late? I'm not sure how viable an option this is since conditions are worsening and not paying a claim today may be better than waiting until tomorrow.
Let's see... "Everyone knows," that its in "everyone's interest," that borrowers willing to pay, "be allowed to stay in their homes."
So the borrower that was allowed to "stay in their home" and re-defaulted in 4q06 cost Triad $26k, and the one that re-defaulted in 4q07 cost them $58k. What will the re-default severity number be in 4q08?
Memo to Shiela Bair: the sooner collateral is disposed of, the lower the severity. This has to be netted out against the savings from successful mods. Its not obvious that the net is a positive number.
So Tanta - do these policies include 'deductibles'... so the very first hit is to the servicer/investor pool... then the insurers step in... then the rest falls back on the servicer/investment pool?
Well, there aren't really deductibles.
However, there is this thing called captive re, which we were talking about in the earlier thread (Freddie having just gotten tougher about its rules thereon).
In a "standard" captive, the MI takes the first 5% of loss, the lender (through its captive sub) takes 5.01%-10%, then the MI takes 10.01% to the policy limit. In exchange, the MI cedes 25% of the premium paid to the captive. (Hence this is described as a 5-5-25 deal.)
In the go-go years there were more than a few 4-10-40 deals (the MI gave up 40% of its premium and takes the first 4% of losses plus any loss after 14% to its policy limit). Freddie just put a stop to that structure.
In no captive I know of does anyone other than the MI ever take the first loss.
Can the MIs get out of some of this liability with some aggressive due dilignence or is it too late?
Yes, and that came up in the Triad conference call, I am informed. I'm looking for a transcript link when it becomes available.
They do not insure against fraud, they have never insured against fraud, and they are not going to insure against fraud at any point in the future. They most assuredly do look into those claims and refuse coverage if they find misrep.
So the borrower that was allowed to "stay in their home" and re-defaulted in 4q06 cost Triad $26k, and the one that re-defaulted in 4q07 cost them $58k. What will the re-default severity number be in 4q08?
Well . . . possibly. We'd need more numbers than we have here.
You have to bear in mind that the MI's exposure is limited to the coverage percent.
So you might have had the borrower who was "kept in the home" because the MI didn't care: the loss was already at the maximum coverage level at that time. Any more severe loss in the event of redefault would be taken by the lender/investor, since it would exceed the maximum claim.
If that were the scenario, the MI would rather approve the mod and hope that no claim is made, since it isn't any worse for them if a future claim is made.
Regarding Spitzer / Dinallo, can they legally split the monolines? Seems like those holding the bag on the non-munis would field an army of Armani-clad lawyers to try and stop that.
I know what will turn the market green...maybe someone can call up old man Buffett and ask him to say he will buy up the Bond Insurers, just the good stuff of course, not the bad...and then the market will have a hay day and go into triple digits by the end of the trading day.........oh wait that's right, this was done already....my bad back to the drawing board.
"If that were the scenario, the MI would rather approve the mod and hope that no claim is made, since it isn't any worse for them if a future claim is made."
If the lender puts in claims for all the junk (can they...I'm not sure from the quote), that likely puts the MI and RE underwater, which then makes the remaining high LTV paper in even worse shape.......
Options ex day? Not to worry. Ben jsut told you he was going to cut rates. Just take a page out of Alan G's book and do it on options ex day. Easy like cake.
If the lender puts in claims for all the junk (can they...I'm not sure from the quote), that likely puts the MI and RE underwater, which then makes the remaining high LTV paper in even worse shape.......
Of course everyone involved has the problem of falling values causing even more defaults.
I am just observing that the MIs have a floor under them: MI policies do not cover unlimited loss. They cover the first loss up to some maximum claim amount which is established when the original policy is written. On average it's probably around 30% of the original loan balance for flow paper. That means that severities worse than that 30% are absorbed by the investor.
Severities by $ can increase because:
Losses in FC are increasing
Larger loans are defaulting
Most defaults are in the largest coverage band (i.e., the highest LTV loans)
I suspect all three are true. I'm just saying that they will not continue to increase forever, because at a certain point the MI coverage maxes out and then it's the investor's increasing exposure to loss.
tj & the bear writes:
Regarding Spitzer / Dinallo, can they legally split the monolines?
Technically, the answer to your question is no, because "monolines" is plural and they only have jurisdiction over MBIA.
They can take the MBIA regulated insurance company into receivership, and at that point they can do pretty much whatever they want to protect policyholders and investors. Their rededial powers are broad.
Doesn't receivership imply BK? I figured the only way they could split things was in BK (where a judge is allowed to separate the wheat from the chaff), but they're not in BK and didn't look like they'd want to go there. That's where Buffet would logically step in, too. Can Spitzer and/or Dinallo force the issue?
"Triad" is a common term in Piedmont NC and refers to the proximate cities of Winston-Salem, High Point, and Thomasville. This area has been hit hard with the loss of textile and furniture production to Asia and the ongoing decline of cigarette manufacturing (RJ Reynolds). The Triad is not a financial center like Charlotte (close however) or high tech like the Research Triangle Park in the Raleigh,Durham, and Chapel Hill area.
My point is what was this firm doing in the Florida, California, and Canadian markets? It seems to me that a real problem in today's economy is business piling into hot markets they are not familar with and chasing trends. One could argue that financial products are commodities and anyone, anywhere with an internet connection can participate but I wonder if local knowledge is not important.
I agree completely. But what default percentage on loans insured was used? I guess what I see as a real possibility is that the quantity of payouts, regardless of the max value of the policy, overwhelm them.
I guess what I see as a real possibility is that the quantity of payouts, regardless of the max value of the policy, overwhelm them.
I am not saying that they could not be overwhelmed by their losses.
I was simply responding to David's post by pointing out that while total loss severity on foreclosures generally can keep increasing, theoretically, until it is 100% of the loan amount, the loss to an MI on any individual loan is capped at the policy limit.
At $57,900, I'm not sure how much larger it could get. On a $200,000 loan that's 29%. The frequency with which such large claims are paid can certainly increase, of course. But if the severity increases much more, we're talking investor dollars, not MI dollars.
Shnapstafarian writes:
Dryfly - speaking of ex-jocks, as a probable Viking fan, do you remember one T.J. Rubley?
Shnapstafarian | Homepage | 02.14.08 - 1:27 pm | #
Or as Chris Berman called him, "T.J. Rubley Tuesday"
yes, thatTJ Rubley - who is now callin' audibles on some sweet teaser rates for your purchase or refiance needs throughout the greater Denver metroplex.
Four of the seven "national" MI companies are domiciled in NC; three in the Triad: United Guarantee (an AIG company) in Greensboro, and TRIAD and RMIC (an ORI company) in Winston-Salem. The 4th company is Genworth, in Raleigh.
All seven companies have a nationwide distribution of risk exposures, though none are "overweight" in either CA or FL - - - the "piggy back" deals were eating their lunch the past few years. Funny thing about that: all the clueless investors in the 1st liens from those piggbacks did the MI's a huge favor, and all it cost the MI's was a big wad of seriously unprofitable business.
There is a saying in football... "Keep callin' the play 'till they take it away."
Lotta ex-jocks playin' the markets too.
Pete Najarian, for instance. I liked him a lot more when he was playing linebacker for the Gophers. Of course, playing for them prepared him for having a crappy track record of success.
I just saw Macklowe walking with a slew of people in suits on Nassau St. I wonder if that meals a deal will be announced today?
I'd say there are 4 possibilities:
A. Sell a building (likely GM) to Arabs (the only people with money).
B. Reach into deep pockets for more cash.
C. Refinancing comes through some Yankee Bank somehow?
D. File BK
Tanta,
Quick question. I'm having trouble finding out how these policies work vis a vis the lender.
Is the insurance:
Or is it dependent on the who wrote the insurance.
Cheers,
Could we get a quick explanation of what age severity is?
woops, meant 'avg' not age
"My Oh MI"
Nowhere else to put it, but just to let you know. In Europe the interbank market yield is now exploding on the long-term maturities (2 years and longer). This will lead very quickly to higher rates for home borrowing.
Dang, near a 50% hike in average claims paid in JUST ONE YEAR!
Um, did the models ever anticipate a jump like that?
I bet not. Hmmm, sounds like tossing Canada out to save their home bacon is an interesting strategy- we shall see if it pays off.
"Our new guidelines, which address loan to value limitations, credit scores and loan documentation, and incorporate volume limitations in distressed markets, led to our reduced fourth quarter production and are expected to further limit production in 2008."
In other words, we are bunkering up and trying to survive. We will write no more crap paper.
Have a nice day! They should have been pulling back in fourth quarter 06.
Someday this war's gonna end...
1. A lump sum percentage of the loan, paid after FC?
It is the lesser of the actual loss (after liquidation of the RE) or the maximum claim amount, which is whatever percentage of the original loan amount the policy stipulated. Actual loss includes principal, accrued interest to liquidation date, and FC/REO expenses.
You can get different coverage levels for various LTVs and loan types. A 95% LTV flow loan, for instance, probably typically carries 30% coverage. That means the maximum claim is limited to $30,000 on a $100,000 loan.
Could we get a quick explanation of what age severity is?
It's just the average dollar amount paid per claim in the period.
The term "severity" is used in contrast to "frequency." So the default rate tells you how frequently they have to pay a claim, and the severity tells you how much they're paying per claim.
Tanta,
Thanks, that clears it up nicely.
I keep seeing the Mexican stand off at the end of The Good, the Bad, and the Ugly. Only in my version, Blondie doesn't know who's gun is empty.
Cheers,
From the front page of the National mortgage news:
"Syron: Constraints Won't Deter Jumbo Program
Freddie Mac will start buying jumbo mortgages in bulk, according to the company's chief executive, and he said he will not let capital constraints get in the way of launching an effective jumbo program. "
Doesnt it sound like kind of a big finger to James Lockhart?
So Tanta - do these policies include 'deductibles'... so the very first hit is to the servicer/investor pool... then the insurers step in... then the rest falls back on the servicer/investment pool?
If not why not? That might bring back at least a small measure of moral hazard vigilance. I mean it keeps me from trying to run over deer.
Topical if OT:
Home Prices Fall in 77 U.S. Metro Areas, Realtors Say (Update1)
By Bob Ivry
Feb. 14 (Bloomberg) -- Home prices fell in a record number of U.S. metropolitan areas in the fourth quarter, according to a report released today by the National Association of Realtors in Chicago.
The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006, the realtors group said today. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the association said.
[snip]
I skimmed this post really fast, but it looks as if the cost of each fc is increasing. That can't be good.
Cal - so who is Syron's Daddy? You don't just decide to do sumptin' risky like that unless you know you have friends looking out for you and so you are looking out for them. Any guesses what's up?
I've heard anecdotes of certain MIs not paying some claims based on the fact that the loan was not underwritten to guidelines. Specifically in regard to some AHL loans that went bad. Can the MIs get out of some of this liability with some aggressive due dilignence or is it too late? I'm not sure how viable an option this is since conditions are worsening and not paying a claim today may be better than waiting until tomorrow.
Even more transparency,,,you something is brewing,,,and it does not smell good.
Bush Administration Hides More Data, Shuts Down Website Tracking U.S. Economic Indicators
Bush administration
Let's see... "Everyone knows," that its in "everyone's interest," that borrowers willing to pay, "be allowed to stay in their homes."
So the borrower that was allowed to "stay in their home" and re-defaulted in 4q06 cost Triad $26k, and the one that re-defaulted in 4q07 cost them $58k. What will the re-default severity number be in 4q08?
Memo to Shiela Bair: the sooner collateral is disposed of, the lower the severity. This has to be netted out against the savings from successful mods. Its not obvious that the net is a positive number.
So Tanta - do these policies include 'deductibles'... so the very first hit is to the servicer/investor pool... then the insurers step in... then the rest falls back on the servicer/investment pool?
Well, there aren't really deductibles.
However, there is this thing called captive re, which we were talking about in the earlier thread (Freddie having just gotten tougher about its rules thereon).
In a "standard" captive, the MI takes the first 5% of loss, the lender (through its captive sub) takes 5.01%-10%, then the MI takes 10.01% to the policy limit. In exchange, the MI cedes 25% of the premium paid to the captive. (Hence this is described as a 5-5-25 deal.)
In the go-go years there were more than a few 4-10-40 deals (the MI gave up 40% of its premium and takes the first 4% of losses plus any loss after 14% to its policy limit). Freddie just put a stop to that structure.
In no captive I know of does anyone other than the MI ever take the first loss.
This weekend?
Bond insurers have days to re-capitalize, Spitzer says
Bond insurers have days to re-capitalize, Spitzer says - MarketWatch
Can the MIs get out of some of this liability with some aggressive due dilignence or is it too late?
Yes, and that came up in the Triad conference call, I am informed. I'm looking for a transcript link when it becomes available.
They do not insure against fraud, they have never insured against fraud, and they are not going to insure against fraud at any point in the future. They most assuredly do look into those claims and refuse coverage if they find misrep.
Speaking of Spitzer he has a nicely scathing op-ed in the Wash Post today.
So the borrower that was allowed to "stay in their home" and re-defaulted in 4q06 cost Triad $26k, and the one that re-defaulted in 4q07 cost them $58k. What will the re-default severity number be in 4q08?
Well . . . possibly. We'd need more numbers than we have here.
You have to bear in mind that the MI's exposure is limited to the coverage percent.
So you might have had the borrower who was "kept in the home" because the MI didn't care: the loss was already at the maximum coverage level at that time. Any more severe loss in the event of redefault would be taken by the lender/investor, since it would exceed the maximum claim.
If that were the scenario, the MI would rather approve the mod and hope that no claim is made, since it isn't any worse for them if a future claim is made.
Regarding Spitzer / Dinallo, can they legally split the monolines? Seems like those holding the bag on the non-munis would field an army of Armani-clad lawyers to try and stop that.
OMG
The Gauntlet !!!
Bond insurers have four to five business days to re-capitalize themselves enough to keep their crucial AAA credit ratings
Spitzer says so
ot today.... please, after op-ex...
monday...just wait til monday, plz eliot
I know what will turn the market green...maybe someone can call up old man Buffett and ask him to say he will buy up the Bond Insurers, just the good stuff of course, not the bad...and then the market will have a hay day and go into triple digits by the end of the trading day.........oh wait that's right, this was done already....my bad back to the drawing board.
This business of Buffet bailing out bond insurers was a "Three's Company"-esque big misunderstanding.
Mr. Furley overheard Warren talking about investing in bail bond businesses, and zany market hijinks ensued.
Tanta,
"If that were the scenario, the MI would rather approve the mod and hope that no claim is made, since it isn't any worse for them if a future claim is made."
If the lender puts in claims for all the junk (can they...I'm not sure from the quote), that likely puts the MI and RE underwater, which then makes the remaining high LTV paper in even worse shape.......
Death spiral.
And given where the economy is headed, that might actually be a timely investment.
Options ex day? Not to worry. Ben jsut told you he was going to cut rates. Just take a page out of Alan G's book and do it on options ex day. Easy like cake.
oh wait that's right, this was done already....my bad back to the drawing board.
There is a saying in football... "Keep callin' the play 'till they take it away."
Lotta ex-jocks playin' the markets too.
Securities backed by auto loans weaken - Feb. 14, 2008
Nice to know it's all contained.
OHHH KNOOWWWW
according to a report released Thursday.
Delinquencies of more than 60 days in securities backed by auto loans surged in January, according to Fitch Ratings service
so , retaail says en-expectedly rise, but 'le consumer' forgot to pay the auto note...
bonds are....Priceless
i'm a little busy...
make that ohhh-nooo
and retail sale's
If the lender puts in claims for all the junk (can they...I'm not sure from the quote), that likely puts the MI and RE underwater, which then makes the remaining high LTV paper in even worse shape.......
Of course everyone involved has the problem of falling values causing even more defaults.
I am just observing that the MIs have a floor under them: MI policies do not cover unlimited loss. They cover the first loss up to some maximum claim amount which is established when the original policy is written. On average it's probably around 30% of the original loan balance for flow paper. That means that severities worse than that 30% are absorbed by the investor.
Severities by $ can increase because:
I suspect all three are true. I'm just saying that they will not continue to increase forever, because at a certain point the MI coverage maxes out and then it's the investor's increasing exposure to loss.
Dryfly - speaking of ex-jocks, as a probable Viking fan, do you remember one T.J. Rubley?
First new shitpile of 2008 left steaming on the grass by bear and MS:
Morgan Stanley Sells First Commercial Mortgage Security of 2008 - Bloomberg.com
Technically, the answer to your question is no, because "monolines" is plural and they only have jurisdiction over MBIA.
They can take the MBIA regulated insurance company into receivership, and at that point they can do pretty much whatever they want to protect policyholders and investors. Their rededial powers are broad.
rich,
Doesn't receivership imply BK? I figured the only way they could split things was in BK (where a judge is allowed to separate the wheat from the chaff), but they're not in BK and didn't look like they'd want to go there. That's where Buffet would logically step in, too. Can Spitzer and/or Dinallo force the issue?
"Triad" is a common term in Piedmont NC and refers to the proximate cities of Winston-Salem, High Point, and Thomasville. This area has been hit hard with the loss of textile and furniture production to Asia and the ongoing decline of cigarette manufacturing (RJ Reynolds). The Triad is not a financial center like Charlotte (close however) or high tech like the Research Triangle Park in the Raleigh,Durham, and Chapel Hill area.
My point is what was this firm doing in the Florida, California, and Canadian markets? It seems to me that a real problem in today's economy is business piling into hot markets they are not familar with and chasing trends. One could argue that financial products are commodities and anyone, anywhere with an internet connection can participate but I wonder if local knowledge is not important.
Jim
Tanta,
I agree completely. But what default percentage on loans insured was used? I guess what I see as a real possibility is that the quantity of payouts, regardless of the max value of the policy, overwhelm them.
Of course, there was a lot of fraud...
Cheers,
I guess what I see as a real possibility is that the quantity of payouts, regardless of the max value of the policy, overwhelm them.
I am not saying that they could not be overwhelmed by their losses.
I was simply responding to David's post by pointing out that while total loss severity on foreclosures generally can keep increasing, theoretically, until it is 100% of the loan amount, the loss to an MI on any individual loan is capped at the policy limit.
At $57,900, I'm not sure how much larger it could get. On a $200,000 loan that's 29%. The frequency with which such large claims are paid can certainly increase, of course. But if the severity increases much more, we're talking investor dollars, not MI dollars.
Shnapstafarian writes:
Dryfly - speaking of ex-jocks, as a probable Viking fan, do you remember one T.J. Rubley?
Shnapstafarian | Homepage | 02.14.08 - 1:27 pm | #
Or as Chris Berman called him, "T.J. Rubley Tuesday"
yes, that TJ Rubley - who is now callin' audibles on some sweet teaser rates for your purchase or refiance needs throughout the greater Denver metroplex.
Four of the seven "national" MI companies are domiciled in NC; three in the Triad: United Guarantee (an AIG company) in Greensboro, and TRIAD and RMIC (an ORI company) in Winston-Salem. The 4th company is Genworth, in Raleigh.
All seven companies have a nationwide distribution of risk exposures, though none are "overweight" in either CA or FL - - - the "piggy back" deals were eating their lunch the past few years. Funny thing about that: all the clueless investors in the 1st liens from those piggbacks did the MI's a huge favor, and all it cost the MI's was a big wad of seriously unprofitable business.
There is a saying in football... "Keep callin' the play 'till they take it away."
Lotta ex-jocks playin' the markets too.
Pete Najarian, for instance. I liked him a lot more when he was playing linebacker for the Gophers. Of course, playing for them prepared him for having a crappy track record of success.