‘We Expect Continued Disruption’ In Mortgage Sector
Reuters reports on the shuffling of mortgage backed securities. “Newcastle Investment Corp. today announced the acquisition of a portfolio of approximately 11,300 subprime residential mortgage loans for approximately $1.5 billion, or a purchase price of 99.60% of unpaid principal balance. The loans are secured by residential homes located throughout the U.S.”
“Kenneth M. Riis, Newcastle’s President, commented, ‘The subprime market has come under pressure as rising interest rates and a re-pricing of credit risk have lowered loan prices. Operating margins for companies that originate these loans are declining and as a result, investment capital for their business is constrained.’”
“‘These market dynamics create opportunities for buyers with long-term capital to selectively take credit risk, and price that risk conservatively. While we expect continued disruption in the sector, this portfolio represented a good opportunity to deploy capital at a high-teens risk adjusted return utilizing conservative underwriting assumptions.’”
From Originator Times. “Mortgage fraud is likely to increase as the mortgage market continues to shrink, according to The Prieston Group, which provides lender quality certification to hundreds of lenders for fraud insurance coverage approval.”
“Based on the group’s most current statistics, housing values are dropping by about 9 percent in some areas while defaults are rising by as much as 22 percent. TPG has also observed that lenders are increasingly dealing with harder loans and less qualified borrowers.”
“Requests for exceptions to loan guidelines have increased, as have the cases of suspected misrepresentation and the resulting referrals to lenders’ pre-funding quality control departments.”
“Additionally, some lenders have reported a 10 percent drop in volume during January over the previous six months. FICO scores have also dropped, averaging 610 in January compared with 649 for the six months ending January 31. Lenders seeking to qualify for coverage have reported significant increases in early payment defaults containing fraud.”
“All these factors are signs of a contracting market. As the market contracts and margins thin, lenders are under more pressure to accept loans of dubious quality. In response to the desire to keep loan volumes up, lenders may be more tempted to not look too closely at loans. Fraudsters understand this, and may try to take advantage of the situation by pushing through loans containing material misrepresentation.”
“‘The mortgage industry must remain vigilant in the fight against fraud, even as loan volumes decrease,’ said Arthur Prieston. ‘It is absolutely essential that lenders..continue to maintain loan quality through all cycles of the mortgage market.’”
Nice 4.73 yield today on the 10 year…
Your sellin it short…
TNX Last: 47.42 Change: +0.58 +1.24% 2:35pm 3/6/2006
Nicer 4.775% yield today on the six-month bills.
Insiders still selling at Countrywide.
and how far ahead was Robert Toll selling? Some 6 months?
2 years! To be fair, he needed to diversify BUT $70 mill in 2005? See:
http://exurbannation.blogspot.com/2006/03/ask-not-for-whom-bob-tolls-he-tolls.html
he needed some grocery money.
those toll insider selling topics you made in 05 were classic.
-39% net. Lots of faith in the future at CFC.
Where should one invest when everything is dropping? (Maybe under the nearest matress?)
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
Cash is King and its light on its feet….
maybe a nice liquid savings account that yields 4.25%???
http://www.emigrantdirect.com/
or
http://www.hsbcusa.com/personal/savings.html
Ill try again…
Maybe a nice liquid savings account yielding 4.25%???
http://www.emigrantdirect.com
or one offering 4.25% with a 4.80% return through April 30…
http://www.hsbcusa.com/personal/savings.html
I-bonds are where the really good yields are found 6.73% treasurydirect.gov
I-bonds are a bad bet right now. Fixed portion of the rate is VERY low. Once the inflation adjusted portion of the rate resets in a few months, rate on newly purchase I-bonds will suffer.
Wrong time to be buying I-bonds.
Any alternative suggestions in the treasury bond arena?
Short term CD’s @ local banks….Wait this out a little bit….
CD’S AND 6 MONTH TREASURY IS WHAT IM IN NOW! Easy money!
January’s CPI numbers were +.7% around 9% annual inflation. I-bond yields aren’t going south for a year or two. Inflation isn’t going to stop with $60+ oil and gold at new highs all the time.
Cd’s are not insured and so if the economy becomes unstable some will probably end up losing money, and any that are higher than government bills will be more risky. 3-6 month Tbills are the safest right now, in my opinion.
what CDs aren’t insured?
pop_pop……….well the govt. has used HEDONICS to cheat investors,gocvt. workers, sos sec. recipientss etc…. BUT “I” bonds should perform well in a DOWN economy..and this is what the Bloggers on this site have been forecasting! If the building / speculative housing boom is OVER…then INFLATION becomes deflation when the foreclosures snowball! As for me I bought PRTNX today at the close.
That’s why I-bonds are a bad bet
RRPIX or RYJUX, anyone?
RRPIX +3 % in 3 days. Rotating some of my cash from Gold and T-Bills into this fund, as I think the 10-year will be under continued pressure.
Invest in shorts on housing. I’ve heard FED and JOE mentioned on this board and elsewhere. FED is an overexposed lender to the fragile Southern California market. JOE holds swampland in Florida that they’re trying to develop into luxury retirement communities.
Just like they have so diligently maintained loan quality for the last several years of the bubble. Riiiiight. That’s why “…defaults are rising by as much as 22 percent.”
Does anyone have any thoughts about what is going on with the yield curve? The curve seems to be righting itself (although it’s not there yet) after weeks of a grownig inversion. The yield on the 10-year is up to 4.74%.
I noticed that as well. If the appetite for US debt declines, the yields would have to rise. The long end has probably been artificially pushed lower due to Asian Central Banks. Another 50 basis point rise in the FF rate could invert the curve more, especially if Asian banks keep buying. Historically, steepness is added only during Fed easing.
My guess is that this is wecome news at the Fed. It gives them room to move short term rates higher without the inverted-curve hysterics.
Those asian countries can stop buying at any time. We have no clue when a shift in asian policy could bring the long end of the curve up, maybe way up. If I were an asian country and I started to see loans defaulting that were connected to my bonds, I would pull my $$ swiftly. The real problem is that all of the other countries around the world have really low rates too. Our long bond rates are the highest and safest around. Japan will raise rates very soon, which will create competition for our long bond and prices will drift upward.
err…interest rates will drift upward…prices down…
Take a look a the last six month chart….It says it all…Fasten your seat belts…
The more they buy the more they keep the yields down the more they protect their already sunk investment which in turn leads to more US consumption of asian goods. They have an interest in keeping this house of cards that they helped create from caving in. Although it’s not just asians buying up debt. A lot of the arab oil $$$$$ is finding its way back here. Any number of countries can kick off a run on the bank. Scary the position our weak economy has managed to get itself into.
The flip side of this predicament — Runaway inflation is the only way for the USA to chip away at its debt. Almost makes you wonder why inflation hasn’t started to run already…
Japan’s Central Bank is expected to announce an increase in their interest rate for the first time in years later this week; the anticipation is setting off an earthquake in the US asset markets, although the Plunge Protection Team is doing a great job of managing the damage…
what the yield curve is doing now is forcing the hands of people who thought they could refi. the barn door has shut and the poor saps who bought with high LTV financing are going to have to scrape up much bigger monthly payments or puke. the rates that are resetting now are the 2003 vintage 3/1 ARMs and it’ll be an ongoing cycle. i think the market will anticipate this for later dated ARMs and people will try to get a handle on their payments or sell their property.
i think now that homebuilders are past throwing in 42″ plasmas and lowering prices, this will bring out the flippers, then the high LTV guys that can’t afford. we’re going to start reading stories regarding lawsuits against homebuilders who lowered prices. the price lowering is already happening in DC–in fact, some real estate agents are proudly proclaiming that you can “buy with built-in equity” because the house next door sold for $150,000 more. fasten your seatbelts, folks–this is going to be UGLY.
Waaaaayyyyyyyyyyy too late to start worrying about loan quality now. With discount rate only four-tenths of a percent, any loan defaults or failures in this pool from any source will result in a direct loss to the investors. Once that happens to enough investors, they will bail out and the entire leveraging structure will begin to unwind. I’ll be submitting a piece I wrote about historic unwinding of leverage in comparison to modern structures shortly.
wow , what a discount .0000001 %
I’m a buyer !
can cpa ex replace this ?
Asha Bangalore, an economist for The Northern Trust Co. in Chicago, estimates housing created 43 percent of all new jobs from late 2001 until mid-2005. That included the obvious, such as jobs in construction and mortgage services, but also retail and service jobs that were created because consumers tapped their rising home equity to buy more things.
that’s why Bush is scared sh*tless in the RE industry goes down. have you ever heard of any presidents saying the RE is fine?
jibjab.com
Click to watch “Year-end Roundup” (which includes a swipe at the housing bubble…)
nope, no bubble here.
http://biz.yahoo.com/ap/060306/housing_slowdown.html?.v=2
This is just the very tip of the iceberg… wait until the end of this year when greater fools are tramping each other to get out of the RE market.
I saw an ad on CNBC for DiTech funding. It goes like this…
Customer: “I just re-financed my house & paid off my charge cards with a loan from DiTech. I can’t tell you how great it feels to be out of debt.”
So, did ditech just give her $$$$$ since she’s now out of debt? Could this be a little deceptive. Listen for it. You may hear about future litigation where some debtor dolt sues…
On the radio ads in Houston the announcer calls them “no-brainers”. “Paying off your credit card debt by pulling money from your house is a no-brainer.”
That sounds pretty marginal too but, “Out of debt”?
I’m afraid that many of those that find themselves out of debt will also be finding themselves out of their (bank’s) homes before this is all over…
Only people with no brains or brains they don’t use pull money out and then keep borrowing.
You are transferring unsecured debt to secured debt. It’s your house!
Now, for someone who has really learned their lesson and wants to get out of high interest debt that they intend to pay off and keep off! Then perhaps this is a good idea. But how many people actually learn? The numbers are very very small. The ones that don’t learn will never have anything but debt. It’s like one of those horrible car washes at the gas stations that just wash the dirt around but your car is still dirty.
If you get a 125% loan it isn’t secured by much, particularly in a declining market. The real problem with this collapse is it will affect those of us that behavein a financially responsible fashion. MBS’s seem to have made their way into my 401k bonds, the economy will likely tank so the stock market will get beat up moving my retirement further out… Lots of reasons to be pissed. I only hope that I can make up for my losses, wherever they come from, by buying up lender-owned properties when the market is flooded with them…
lots of articles lately about the potential for a rise in defaults and a general shutting down of the liquidity spigit.
I heard a loan ad from the idiot that claims he is president of Lennox Financial. He states that “calling Lennox for refinancing is the biggest no-brainer in the history of mankind”. He is also really obnoxious sounding. Hope his company goes down with the defaults. Anyone else heard him (this was in the Bay are on the Dr. Laura show.)
Yep..that guy is everywhere, hear him everyday in L.A. during my commute. Can not figure who the f… would go “Gee, I should call..that guy sounds really smart..yep, he’s got my best interest in mind.”
Can’t even imagine the quality and condition of the houses which constitute the collateral for NIC’s 1.5bil. F*ckin’ idiots who bought this pile of garabage outta a stroll thru the neighborhoods where all their shite is located. Bet Tony Soprano’s “Victor the Appraiser” has.