Friday, April 11, 2008

Happy Anniversary OOMLT 2007-2!!!!

Or really just the Option One April 2007 Subprime deal from H&R Block.

This is how the deal is performing as of March 2008: 25% serious delinquency with 13.5% in foreclosure after a year. Teaser Freezer wont help 'em, they haven't even reset.

Look at the remaining balance: 85%. This is roughly 100% minus the 13.5% already in foreclosure, isn't it? Refinancing by FHA my a**.

The entire 2007 was LOCKED up as far as subprime non-agency financing went. So who own the risk in this package. Well maybe the AAA did catch a bid, but who owned the subs and NIMs because they're on the hook to pay losses?

So how much in 2006 and 2007 was Option One subprime production per OOMLT mortgage shelf outlet:

Yep, $16 Billion.
Where did this subprime RISK go? Keep in mind I shouldn't say RISK, but more like REALIZED damage already, per the first graph I put out.
HRB balance sheet per their last 10-Q was $7.5B. Yet, IF HRB didn't (and I think they couldn't) sell the risk of the $16B 2006 and 2007 subprime exposure, they will be sitting on top of roughly :
30% loss rate x $16B balance = about $5B LOSS, at the time when the Shareholder Equity is $1.4B.
Yes, that qualifies as being INSOLVENT.


Jennifer said...

Hi Spy...shoot me an email at - let's chat off the record.

MTGSPY said...

Hi, Good to meet you here. Sent you an email. Look forward to. Have a good one.

mortgage_observer said...

How come option is still servicing those pools of mortgages? The trusts carry 25% termination triggers.

mortgage_observer said...

I would like to your screenshot #1 for the Option One 2007-CP1. It was over 23% delinquent in January, it must be over 30% by now.

MTGSPY said...

Well observer, the idea isn't exactly about who serviced the loan right now :D

I am showing 1. how much of option one loan must have been unsold and 2. how bad the performance has been.

I recalled vividly that Jan 2007 was the absolute end of trading in subordinated bonds (and many AAAs) backed by subprime 2/28 loans. In practice the end must have been sometimes before, but I'll search my notes and emails to point to the final turning point if I could find it.

mortgage_observer said...

My point is this: When the default rate reaches 25% on those trusts, the servicer (Option One) is supposed to be terminated per the agreements.

There is no risk to HRB at this point as they sold the loans and risk to somebody else. JPM, HSBC, Lehman, etc - but if Option One were to be terminated because of the default rate then maybe HRB has some liability.

2007-CP1 should have hit the trigger by now.

MTGSPY said...

That is what I was saying.

The risk comprised of AAA and the subordinated bonds.

As of late 2006, there was no market for the subordinated bonds, the bottom 30% of risk generally speaking.

It doesn't matter that you can sell the AAA piece to somebody else - the credit risk is entirely in the subs as you can see.

Terminating the servicing can actually be great for Option One because that is about to get real expensive servicing loans at that delinquency rate.