Um fewer subprime lenders alone accounts for much of the shrinkage. the resets are going to be grim- does anybody have a place to find the number resetting in any given month?
I know spring of '05 was blistering here in Phoenix for sales- so those with 2/28s are up soon.
The 3/27s have another year- anybody think the 5/1s might make it through to the other side?
DH: mortgages do not get ratings of AA and AAA. Or BBB- or anything else. Those are ratings of securities, or parts of securites (tranches).
The underlying loans are classified, in general, as "prime," "Alt-A," or "subprime." As the case may be. There are many, many security tranches out there in the world that are rated AA that are backed by an underlying pool of subprime loans. It's because that security has a subordinated tranche rated BBBB (or even unrated) that absorbs the first losses, making the senior tranche holder "credit enhanced" up to AA or AAA or whatever.
Allen, the interesting thing about the real 5/1s is that the jumbo ones mostly have a first adjustment cap of 5% and the conforming ones mostly have a first adjustment cap of 2%. So the bigger they are, the harder they'll fall.
I say "real 5/1s" because there's a great big bunch of 5/6-month ARMs out there. You can pretty much bet that if it has a 6-month rather than 1-year reset frequency, it's jumbo prime, Alt-A, or subprime. Prime lenders still like that 1-year reset.
So, this morning, I decided I'm getting bored with the mortgage broker message boards, and have decided to branch out into Yahoo! message boards on mortgage stocks.
One of my new favorite candidates for the Next Big Explosion, now that we've gotten through NEW and NFI and (apparently) FMT is AHM. I really, really, don't trust them. Anyway, I was reading some responses to some AHM-short message:
I assume you think you know more then the 1/25/07 Citibank analyst report. Maybe you'd like to venture an opinion as to why this analyst thinks AHM is GOOD while you think it is a piece of shit. Maybe you are full of it. It doesn't take a brilliant short player to figure that given the whole mortg. sector is being seriously battered, regardless of company or reported earnings or projected 07 earnings to play companies in the sector short. It is just as reasonable to load up on what is a screaming buy given that everyone also knows that either later this year or next the housing sector will bottom and turn. This stuff is similar to toilet paper(no pun intended)e.g., everybody in American wants to own their own home and just the demographic population increase is sufficient to keep home ownership growing. Like you I have a fair understanding of this market as I partly own a title company.
Tanta, you just sent shudders down my back with the words "credit enhanced".
Now I think I shall begin selling even more stocks and bonds and raising that old fashioned comfort item- cash. Combine derivative with credit enhancement and sprinkle a big stress test on top. Save your pennies, they will buy big dollars worth of assets when the gearing unwinds.
Read an interesting discussion that the MSM is finally beginning to tweak to the fact that Gentle Ben can either save the dollar or save housing and the stock market. I bet on the dollar myself, and let the damage fall where it may.
A technology by which those who have been thinking that they were long brains and short nimrod discover that we're all naked and the margin call is on line two.
DH, the "whole security" isn't rated in a structured security. The individual tranches are. The whole reason that the security is "structured" is so that senior pieces get high ratings, and subordinate pieces get low ratings. The way that works is that the interest on the underlying mortgage pool is carved up so that the senior pieces get a lower rate of return, in exchange for the high credit rating, and the subordinate pieces get a high rate of return, in exchange for being first in line for losses (low rating or no rating).
But there is still only one underlying pool of mortgages. It can have anything in it the issuer wanted to securitize. It could be a mix of prime, alt, and subprime, or all alt, or all subprime. You have to read the prospectus on any given security to know what's in the underlying mortgage pool. You cannot guess these things from the rating of the security tranches.
It is highly unlikely that a structured security is all prime conforming stuff. There's little reason not to put those loans--which are very uniform in credit quality, note rate, and loan structure--into a plain vanilla MBS pass-through.
A structured security generally has quite a range of underlying credit quality, loan structure, and note rate. If you put a big mixed up underlying pool of mortgages like that in a plain vanilla pass-through security, it would have an investment rating and yield equal to the average of the underlying loans. That would not accomplish what these securitizers want to accomplish. So the thing is carved up into different credit levels and yields.
A mortgage application is just a mortgage application. It's a form you fill out if you want someone to give you money. The application is a necessary but not sufficient condition for a loan being closed, since not everyone who asks shall be given. Not everyone who is approved ends up closing. Mortgage application statistics are like new home sales--which involve reporting on signing contracts to buy homes, but not actual closings of home sales. This is why what is being reported is an activity index number, not actual dollars or numbers of loans or something. Another way to put it is that the application activity index measures how busy lenders are in a given week. It does not necessarily measure how productive they are (productivity in lending being a question of turning an application into a closed loan).
Somebody asks this quesion every week when CR posts the MBA numbers. I stopped answering it a while back; it's too easy to forget that people haven't been reading along forever. Perhaps our genial host will update his MBA applications post to include this sort of information. If we ask nicely.
So if I go in for a pre-qualification does that count as a mortgage application? Back when I was looking to buy a house (that was a couple months back, I've since decided that it would be a very bad idea to buy now) I was asked to get pre-qualified so I went to my credit union and asked what it would take to get pre-qual'ed and was told that I would have to apply. At the time I was mostly just 'kicking the tires' so I decided not to apply.
Does anyone know what percentage of
AA and AAA prime mortgages in the past 2 years has been ARMs, neg amortization or other risky types?
Thanks
Kinda week on the refinancing share. Again. Not what you'd expect to see with resets barreling down the pike.
Anyhow, not what I'd expect to see. Your mileage may vary.
Um fewer subprime lenders alone accounts for much of the shrinkage. the resets are going to be grim- does anybody have a place to find the number resetting in any given month?
I know spring of '05 was blistering here in Phoenix for sales- so those with 2/28s are up soon.
The 3/27s have another year- anybody think the 5/1s might make it through to the other side?
DH: mortgages do not get ratings of AA and AAA. Or BBB- or anything else. Those are ratings of securities, or parts of securites (tranches).
The underlying loans are classified, in general, as "prime," "Alt-A," or "subprime." As the case may be. There are many, many security tranches out there in the world that are rated AA that are backed by an underlying pool of subprime loans. It's because that security has a subordinated tranche rated BBBB (or even unrated) that absorbs the first losses, making the senior tranche holder "credit enhanced" up to AA or AAA or whatever.
Allen, the interesting thing about the real 5/1s is that the jumbo ones mostly have a first adjustment cap of 5% and the conforming ones mostly have a first adjustment cap of 2%. So the bigger they are, the harder they'll fall.
I say "real 5/1s" because there's a great big bunch of 5/6-month ARMs out there. You can pretty much bet that if it has a 6-month rather than 1-year reset frequency, it's jumbo prime, Alt-A, or subprime. Prime lenders still like that 1-year reset.
So, this morning, I decided I'm getting bored with the mortgage broker message boards, and have decided to branch out into Yahoo! message boards on mortgage stocks.
One of my new favorite candidates for the Next Big Explosion, now that we've gotten through NEW and NFI and (apparently) FMT is AHM. I really, really, don't trust them. Anyway, I was reading some responses to some AHM-short message:
I assume you think you know more then the 1/25/07 Citibank analyst report. Maybe you'd like to venture an opinion as to why this analyst thinks AHM is GOOD while you think it is a piece of shit. Maybe you are full of it. It doesn't take a brilliant short player to figure that given the whole mortg. sector is being seriously battered, regardless of company or reported earnings or projected 07 earnings to play companies in the sector short. It is just as reasonable to load up on what is a screaming buy given that everyone also knows that either later this year or next the housing sector will bottom and turn. This stuff is similar to toilet paper(no pun intended)e.g., everybody in American wants to own their own home and just the demographic population increase is sufficient to keep home ownership growing. Like you I have a fair understanding of this market as I partly own a title company.
"I partly own a title company."
I partly just threw up on my keyboard.
Tanta, you just sent shudders down my back with the words "credit enhanced".
Now I think I shall begin selling even more stocks and bonds and raising that old fashioned comfort item- cash. Combine derivative with credit enhancement and sprinkle a big stress test on top. Save your pennies, they will buy big dollars worth of assets when the gearing unwinds.
Read an interesting discussion that the MSM is finally beginning to tweak to the fact that Gentle Ben can either save the dollar or save housing and the stock market. I bet on the dollar myself, and let the damage fall where it may.
The Internet.
A technology by which one's worst fears about the intelligence of humanity are shown to be grossly inadequate.
Yahoo! Message Board:
A technology by which those who have been thinking that they were long brains and short nimrod discover that we're all naked and the margin call is on line two.
Thanks Tanta,
Did you just say that aa rated securities consist of pools of loans with subprime loans mixed in?
DH, the "whole security" isn't rated in a structured security. The individual tranches are. The whole reason that the security is "structured" is so that senior pieces get high ratings, and subordinate pieces get low ratings. The way that works is that the interest on the underlying mortgage pool is carved up so that the senior pieces get a lower rate of return, in exchange for the high credit rating, and the subordinate pieces get a high rate of return, in exchange for being first in line for losses (low rating or no rating).
But there is still only one underlying pool of mortgages. It can have anything in it the issuer wanted to securitize. It could be a mix of prime, alt, and subprime, or all alt, or all subprime. You have to read the prospectus on any given security to know what's in the underlying mortgage pool. You cannot guess these things from the rating of the security tranches.
It is highly unlikely that a structured security is all prime conforming stuff. There's little reason not to put those loans--which are very uniform in credit quality, note rate, and loan structure--into a plain vanilla MBS pass-through.
A structured security generally has quite a range of underlying credit quality, loan structure, and note rate. If you put a big mixed up underlying pool of mortgages like that in a plain vanilla pass-through security, it would have an investment rating and yield equal to the average of the underlying loans. That would not accomplish what these securitizers want to accomplish. So the thing is carved up into different credit levels and yields.
So what exactly constitutes a "mortgage application"?
Is it possible that there are more applications because people are applying and getting rejected and then trying again elsewhere.
A mortgage application is just a mortgage application. It's a form you fill out if you want someone to give you money. The application is a necessary but not sufficient condition for a loan being closed, since not everyone who asks shall be given. Not everyone who is approved ends up closing. Mortgage application statistics are like new home sales--which involve reporting on signing contracts to buy homes, but not actual closings of home sales. This is why what is being reported is an activity index number, not actual dollars or numbers of loans or something. Another way to put it is that the application activity index measures how busy lenders are in a given week. It does not necessarily measure how productive they are (productivity in lending being a question of turning an application into a closed loan).
Somebody asks this quesion every week when CR posts the MBA numbers. I stopped answering it a while back; it's too easy to forget that people haven't been reading along forever. Perhaps our genial host will update his MBA applications post to include this sort of information. If we ask nicely.
Thanks Tanta.
So if I go in for a pre-qualification does that count as a mortgage application? Back when I was looking to buy a house (that was a couple months back, I've since decided that it would be a very bad idea to buy now) I was asked to get pre-qualified so I went to my credit union and asked what it would take to get pre-qual'ed and was told that I would have to apply. At the time I was mostly just 'kicking the tires' so I decided not to apply.