Friday, April 11, 2008

Typical Option ARMs from the bubble days.

I am not going to use anecdotes, he says she said, or quoting anyone.

Without further delay, I am presenting Countrywide's CWHL 2006-OA5 Package. These are your standard Option ARM loan packages, not much worse nor better from anyone else's.

Some explanations on the highlighted points:

  1. Only 52.9% of the balance remained after 2 years. But the trend is absolutely alarming, because it appears that RIGHT AFTER the FIRST year, everyone who could get out got out of this loan program. ( Probably about 30% of the population, and from what I heard they yet refinanced into another OA loan in 2007. It is sufficient to say they did NOT escape the "Event Horizon" ). All loan balance reduction since then has been involuntary (default).
  2. Obviously the change in serious delinquency itself can nearly explain all of the declining performing balance in the package.
  3. CA loans (and FL) dominated Option ARMs loan packages, twice or three times more prevalent sometimes even compared to subprime ARMs.
  4. This loan hasn't reset in any meaningful way. The recast is still 11 months away on average.
  5. The coupon is 1.63% and yet the WAC (think of it as APR) is 8.25%. More than 6.5% built-in Negative Amortization in this package, annually. Think also how much the Loan-to-Value ratio changed over the past two years factoring in California house price declines. I am 100% certain ALL the remaining loans are upside down, with LTV above 100%.
  6. It says here that 95.66% of the loan has negatively amortized. That means 95.66% of the borrower at some point (or rather, has been) choosing the "minimum payment" feature of the loan.
Everybody in the mortgage business (WM, WFC, BAC, IMB, DSL, FED) and the investment banks (C, GS, LEH, MER) all have unsaleable packages with identical level of toxicity.

Also, if any of you out there read this and recalled the "banking generational buy" from Dick Bove a couple of weeks back and would like to send him a link of this analysis, you have my blessing. He doesn't seem to have, in my opionion, a Bloomberg terminal, to even just look at the reality of those much vaunted Wall St. Bank balance sheets. It's really out there to see in plain sight.

Too damn bad there are people who listened to him.

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