Jumbo Mortgage Default Rate Is Catching Fire

The information below is consistent with the large bank risk profile for jumbo mortgage lending in most states. As an example the standard down payment has moved to 30% from 20-25% just this summer in a lot of markets. This also is related to the Strategic Default problem. Most jumbo mortgage holders are on-time and won't default but the economics of the business change when defaults move from historic 1% levels to3-5%.

Moody's Investors Service has revised its loss projections for US prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008. On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance. As a result of the revision, Moody's has now placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade.

Moody's is also aggressively hiking delinquent loan estimates in the near term.

To estimate losses, Moody's first projected delinquencies through the second half of 2010. Moody's estimated that the proportion of contractually current or 30-day delinquent loans today that will become seriously delinquent by the second half of 2010 will be 3.7%, 7.0%, 8.4%, and 9.4% for the 2005, 2006, 2007 and 2008 vintages, respectively.

So much for no taxpayer losses on GSE exposure.

Full Moody's text:

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New York, December 17, 2009 -- Moody's Investors Service has revised its loss projections for US prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008. On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance. As a result of the revision, Moody's has now placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade.

Moody's has already taken widespread rating actions on deals backed by jumbo collateral from the 2005-2008 vintages from March through July of this year. The updated loss projections will have the greatest impact on senior securities issued in 2005.

On October 29th, Moody's announced that it would update certain assumptions underlying loss projections for each of the major RMBS sectors. The rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress prompted today's announcement. Over the past nine months serious delinquencies (loans 60 or more days delinquent, including loans in foreclosure and homes that are held for sale) on jumbo mortgage pools backing 2005 to 2008 securitizations have increased markedly. Since March, serious delinquencies for the 2005, 2006, 2007 and 2008 vintages have increased to 3.2% from 2.1%, 6.0% from 3.8%, 7.6% from 4.8% and 7.8% from 4.6% respectively (reported as a percentage of original pool balance).

Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months. Moody's Economy.com (MEDC) expects home prices to decline an additional 9% to reach a peak-to-trough decline of approximately 37%. Adding to borrowers' financial pressure, unemployment is now projected to peak at around 10.6% from previous projections of 9.8% from the first quarter of this year. Both measures are expected to reach their peaks sometime in the second half of 2010, after which recovery is expected to be slow.

from Moody's and Zerohedge.

CITI Given IRS Tax Break: Really Helping Ourselves?

How the IRS sort-of-saved Citi

Posted by Tracy Alloway on Dec 17 13:35.

Who says the IRS isn’t, umm, understanding?

The US tax authority exempted the Citigroup, and some other bailed-out companies, from rules which would otherwise have led to the troubled bank losing $38bn worth of tax credits.

Citi had planned to repay the US government’s Tarp stake, and under IRS regulation, companies that encounter a change in ownership lose these tax credits. The rule is designed, according to the IRS, to prevent profitable companies from buying loss-making ones to evade taxes.

The rule-change has nevertheless raised eyebrows. From the Washington Post on Wednesday:

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

from the FT.

Did the government(us) give CITI a tax break to ultimately help the balance sheet? Possibly as a way to deal with upcoming losses and/or maybe provide new lending? In owning a huge piece of this bank aren't we really helping ourselves using creative accounting...

What do you think? Please discuss below.

FED Chairman Refied into a 30Y Fixed in 09. Maybe his best move yet.

From the interview:

From TIME Magazine: Person of the Year 2009 Extended Interview

TIME: Do you have a mortgage?


Bernanke: Oh, yes, we refinanced.


TIME: Oh, perfect. When?


Bernanke: About 5%. A couple of months ago.


TIME: Good time.


Bernanke: Yes. We had to do it because we had an adjustable rate mortgage and it exploded, so we had to.


TIME: So, did you get a fixed rate at 5%? I think this might be the most valuable piece of information. (Laughter.)


Bernanke: Thirty years fixed rate at a little over 5%.

So Bernanke refinanced into a loan with a higher interest rate and with a larger mortgage payment for the security of a fixed rate. This suggests he thinks fixed mortgage rates have bottomed (otherwise he could have paid less on his mortgage, at a 3.75% interest rate, and then refinanced next year). He did not "have to do it".


At least he was smart enough to know that mortgage rates aren't going to be lower in the proverbial "future." Now about the handling of the dollar and the unemployment rate.. another post entirely.

Tiger Woods Poem -Anon

Tiger, Tiger bonking bright

in the fleshpots of the night

what immortal eye or hand

could restore your tarnished brand?

On what porn star’s breasts and thighs,

burnt the fire of your eyes

on what course did your ball run

as you sunk a hole in one?

You always looked so squeaky clean

as you strode across  the green

what  a relief  for other  men

to know deep down you’re just like  them

All the endorsements down the drain

in what place was kept  your  brain

how deep the bunker, how long the grass

how costly all the tits and ass

Why did you keep your clubs so handy

why did you marry a fearsome scandie

at golf you’ll always be a winner

at cheating you’re a rank beginner

Tiger, Tiger bonking bright

in the fleshpots of the night

what immortal eye or hand

could restore your tarnished brand?

Author Unknown

Rock Bottom Conforming and the Lowest Jumbo Loan Rates In History

click to enlarge

From the NYT:

“Mortgage rates in the United States have dropped to their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government. Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.
The scarcity of credit not only hurts homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession.”

Sure, jumbo mortgage refinancing could save home-owners lotsof money they could then plow back into the economy — or even avoid foreclosure. But not if bank lending standards are too tight.

That is the problem with an abdication of lending standards — as we saw from 2002 – to 2007. After the collapse, the over-reaction sends the pendulum swinging too far the other way. Lending standards become too tight.
If only we monkeys could learn anything from history . . .

The Solution to the Economic Recession

Source:
Cartoons by Rick McKee
Augusta Chronicle, Dec. 2, 2009
http://spotted.augusta.com/chronicle/display.html?collection=14378&gallery=28124&page=1&photo=827382

Level Headed Every Day Man Analyst on the Reality of the Consumer

Matt Taibbi Detailing Obama-Wall St Links

So True It Almost Isn't Funny. But it is....

MBA Report: Purchase Index at 12Y Low!

Rates can go to 3% but if someone isn't working, working part-time, or concerned about their career in this environment they aren't making an offer on a new home. I think the home buyer tax credit that expired and was renewed recently pulled demand forward resulting in a lack of buyers now. Realtors tell us that well priced listings are slowly selling but action has really slowed down in the last month. Is this simply the winter seasonal slowdown or is this another leg down for the economy at large? My guess is a double-dip recession after a disappointing holiday season. Expect another large jobs bill from congress before year end.

MBA: Report Purchase Index at 12Y Low!

From the Mortgage Bankers Association...

The Market Composite Index, a measure of mortgage loan application volume decreased 2.5 percent on a seasonally adjusted basis from one week earlier. The four week moving average for the seasonally adjusted Market Index is down 1.2 percent.

The Refinance Index decreased 1.4 percent from the previous week. The four week moving average is up 1.4 percent for the Refinance Index. The refinance share of mortgage activity increased to 72.9 percent of total applications from 71.5 percent the previous week. This refinance share is the highest share since the week ending May 15, 2009.

The Purchase Index decreased 4.7 percent from one week earlier. The four week moving average is down 5.8 percent for the seasonally adjusted Purchase Index.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.83 percent from 4.90 percent, with points increasing to 1.17 from 1.03 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest contract rate observed by the survey since mid-May of this year.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.32 percent from 4.33 percent, with points decreasing to 1.01 from 1.15 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs decreased to 6.82 percent from 6.85 percent, with points decreasing to 0.28 from 0.29 (including the origination fee) for 80 percent LTV loans.

Who's Paying the Tab?

Government Bailouts of hundreds of banks, GM, Medicare, Wars in Iraq and Afganistan. But who actually is paying for it? Aside from putting it on the big goverment charge card we have with the US Treasury, someone has to pay the tab every year. Nice infoporn from Mint.com below. Click to enlarge.