Friday, April 25, 2008

Mortgage Technical Day: April 25th

Remittances (payment information) on mortgages are released every 25th of each month. So today I looked up the ABX 2006-2 remittances.

Here is some eyeballing statistics that I will use from March-April data:

Remaining Unpaid Balance: 60%
Increase in cumulative loss: 0.40% off the Original Balance.
Paydown Speed as a rate vs. Remaining Unpaid Balance (including default) : 24% CPR
Severity: 40%.

I want to deduce nationwide, for the subprime borrowers accross USA, how many were able to refinance and how many ended up in default.

That is, how much of the 24% Paydown speed that is due to defaulted, liquidated homes?

Well that's easy:

Defaulted balance must have been (Increase in cumulative loss divided by Severity), which is 1% in a MONTH off the Original balance.

Therefore, as a fraction of the current balance it is 1% / 60% = 1.67% per month went default. Or in annualized rate, it is 1.67% x 12 = 20% rate annual of liquidation of Current Unpaid balance.

There you have it, off the 24% Subprime paydown rate that occured in March 2008,

  • about 20% of that is involuntary, homes being liquidated and people being kicked out of their homes.
  • Only 4% of that rate was able to refinance.
Expect mortgage technical on the 25th of each month.

Oh before I go, on the Prime mortgage side, I read that
  • Freddie Mac serious delinquency is now 74 bps versus 71 bps a month ago?
  • And Fannie Mae is now 110 bps versus 104 bps last month.
The steady grind continues. ( Have you sold the call by the way against your long from 2 days ago? [grin] )

One last thing: more GS employee betting the top in their company fortune? Again, you be the judge.

Goldman Mortgage Trading Chief Sparks to Leave, Spokesman Says
2008-04-25 15:08 (New York)

By Christine Harper
April 25 (Bloomberg) -- Dan Sparks, who runs Goldman Sachs
Group Inc.'s mortgage division
, is leaving the firm after a
successful bet on the declining value of subprime home-loans
helped the company produce record earnings last year.


Penn said...

What caused Freddie and Fannie to shoot the moon today?

Is this a temporary phenomenon or these prices will come down in short order?

gtt said...

maybe short term pop in USD makes people think foreigners start buying agencies more again?

MTGSPY said...

Keefe bruyette upgraded FRE. Ken Posner of MS upgraded 2009 earnings for FNM. Nothing fundamental. Should tank early next week due to fundamental. If nothing else the rate decision will be a catalyst to a drop. They still view these two companies equity as equity of fixed rate bond investor. That dropped if rate goes up.

On my game money (600 shares) I sold $28 mays for $1.50. Rinse and repeat by then.

MTGSPY said...

may calls i mean. I still want the stock for more of the same game.

Neil said...

mtgspy, so are you long fannie and freddie stock?

MTGSPY said...

I dont trade the core position. By that I mean yes. ;)

D said...
This comment has been removed by the author.
MTGSPY said...

D (Enf? :)

I'd like to clarify what I am currently thinking as bailout.

Having learned from the mess in BSC, the govt learned that it's easier and cheaper just to purchase the equity of a target company. Rather than guaranteeing 4T dollar debt, they'd rather give $100B cash as a gift to FRE and FNM.

In return FRE and FNM could say they'd "repay" the kindness by overtime lowering mortgage rate, such that the benefit over 30-50 years would be enough to payback the $100B plus the interest. :D

Truly the rape of nanking for the taxpayers.

Anyway, the timing should be somewhere in mid-2009.

FNM is now in my opinion holding 400k homes (inventory+pipeline estimate) each costing an average of 80k loss.

They are trying desperately to classify delinquent loans back into current by endless loan mod at this point. My guess is, in 6 months all these loans will be back non-performing again, and finally early next year FNM will formally initiate money request from the US govt, in cash handout straight to the equity.

This won't be like the first-time penetration, shy oh i am so shy, like in BSC case. This would be the head on superhardcore bailout, and I think $60B for FNM , and $40B for FRE, and the govt just participate in the equities of these companies. Everyone's happy, except USA taxpayers.

No rush, there's plenty of time to play the swings while waiting for the final rocketshot. It will be spectacular.

D said...

Thanks for the color! I wasn't expecting a closet bailout like the BSC-JPM deal and doing a straight equity infusion makes more sense politically because it is a much smaller/marketable figure to talk about.

Since FNM/FRE have the implicit guarantee and would therefore be more socially accepted in a bailout scenario, is the plan for FNM/FRE to buy/insure all of the crap that cannot be refied or worked-out by the banks?

100 billion - 32 billion = other bank crap?


MTGSPY said...

It won't be a closet bailout.

Keep in mind $100B in equity is money immediately payable. Where as guaranteeing $4T is not necessarily paying a dime at all.

And No, the quid-pro-quo is the "benefit" over long period of time. That's how helpless USA govt is, it's the real financial hostage in this crisis.

Once the money is in it's for "internal consumption" only in the GSE. If anyone else wants money they need to figure out how to leverage their positions to get it from Uncle Sam. Get your own beer so to speak.

D said...
This comment has been removed by the author.