CR, I can't remember if you posted about this when it came out in early August. It's the Freddie Mac quarterly cash-out report, and it's a better source of information about refinancing than the MBA applications index (it's got more data and doesn't have fallout problems because it tracks closed loans instead of applications). Anyway, the Q3 data won't be released until November 1, but the Q2 report still has interesting insight on those puzzling refinance numbers. Notice the huge increase in price appreciation between quarters, and the median age of loans being refinanced. This whole process of "unseasoning" everybody's mortgage book is really scary when you think about its implications for risk models.

Cash-Out Refinance Activity Rises in Second Quarter 2005. - News Archive - Freddie Mac

As I understand it, the data quoted by Tanta, does not include the really toxic stuff by folks packaging it into MBOs and the such.

The other thing I see, is that these are folks that did not refinance to get a lower rate for whatever reason either because they had the mortgage too short of a time, just forgot or the figures did not work. So it may be that not only are the mortgages becoming more risky but the last folks able to are refi-ing.

JS: pardon me while I shake my head and utter a cynical laugh. The only useful reporting of this nature is mandatory reporting. Believe me: even if you're basically an honest shop with nothing to hide, you will not devote resources to filing reports with the Fed once a month unless they make you.

The reason why the data is good on regulated institutions (which are depositories) is that call reports and regular filings aren't optional, and the regulators will eventually bust you if you blow them off or send them raw, unadjusted or sloppy data. In fact, they're more likely to take action against a bank or thrift for screwing up reports than for even more dangerous safety and soundness violations, since the former is a lot easier to detect than the latter.

So the Fed could always go ask unregulated mortgage bankers to pretty please send us good data every month just to be good citizens. The response would be something like the sound of one hand clapping.

Or the Fed could ask Congress for authority to require this data from unregulated/unsupervised mortgage bankers. I'm sure Congress would get right on it, just after they manage to put minimal disclosure requirements on hedge funds and come to consensus about whether they want to put prudent risk-management regulations on Fannie and Freddie or just destroy them in a fit of free-market "creative destruction."

The problem, in my personal nutshell: regulation of financial institutions has always worked on the fear of a run against deposits. Starting with Glass-Steagall, major regulations have been intended primarily to prevent that threat. That being so, old-fashioned bank failures have indeed become very remote threats. In their place, the major threat has become "systemic risk" involving the interpenetration of depository institutions with broker/dealers, hedge funds, and unregulated asset originators. That's the big heterogenous mix of mortgage bankers, brokers, car dealers, a whole host of players who borrow money from "warehouse lenders" (banks) to create loans that are sold to "conduits" (banks) to create assets that are taken off balance sheet by being securitized and sold to "hedge funds" whose capital is frequently augmented by (banks) in the form of breathtakingly leveraged margin accounts. To deal with this kind of risk, the Federales are going to have to stop focusing on the "depository" part exclusively, and start drilling down into the "intermediaries" and unregulated players.

They just won't, because there is a big mean powerful lobby out there that wants us to keep focusing on the GSEs' books. "Look over there!"

PS: Don't come back to me with "yeah, but Fannie and Freddie concentrate so much risk in one place." Of course they do. That's their function. My point is about the risk that isn't concentrated in one place and is therefore harder to see, regulate, and mitigate.

I think I need a new hobby other than reading financial docs, maybe drinking copious quantities of Bushmills.

Who was it who said... "Irish whiskey tastes going down like good Scotch whiskey tastes coming up..."

But then my Irish/American father heard that, he would reply... "Possibly, but what better use could one find for 'good' Scotch whiskey?"

Ah yes - just thought I'd add that...

More things you can't make up: the next mortgage product will both reduce your monthly payments AND cure alcoholism.

BBC NEWS | UK | Magazine | 'Binge drinking? Blame house prices'