Mr Mortgage's Guide to the TRUTH!

CDO BACK IN THE SPOTLIGHT- FRONT & CENTER

One of our friends, let's call him 'R' for short, sent some good info on Wachovia below so I thought I would talk about the monolines again.

Monolines, as if it is any surprise, are surviving on fumes. The CDO story is breaking once again (as if defaults ever got better) but this time maybe the final blow.  Very few, other than the monolines themselves, believe they actually have the capital to support future claims levels and news like we are getting today should make that apparent to even them. Just remember, every time you see a press release such as 'housing values drop x% nationally', 'S&P downgrades 300 AAA tranches from 100  Alt-A deals', 'foreclosures jumped last month', even 'existing home sales down more than anticipated', etc, that ultimately, it weakens the the infrastructure of the security leading to more losses.

I still think the monolines going down is a large threat to the financials and credit market in general. It could literally happen at any time or never.

By the way....why such focus on the CDO anyway? The CDO universe is small compared to the whole loan and mortgage-backed security (MBS) universe. And whole loans and MBS are owned by a much wider investor base. MBS make up CDO's for Pete's sake. It seems that all this hoopla over a few banks taking big hits on CDO's is hiding the much greater exposure and losses that must be occuring on the CDO components in order for the CDO itself to sustain a loss. -Best, Mr Mortgage

FROM WACHOVIA THIS MORNING (will get charts up soon but data below speaks for itself)

As a supplement to our CDO Collateral and CDO Tranche Downgrade Reports, Wachovia CDO Research presents our summary of ABS CDO Default Statistics.

Exhibit 1 shows the count and volume of ABS CDO events of default by vintage, along with total ABS CDO and total CDO issuance, for the years 2004–2007. Our volume statistics represent USD CDO issuance, (based on original liabilities and equity), as reported by Intex. We classify CDOs according to collateral pools; ABS CDO issuance in Exhibit 1 displays the volume of CDOs with structured finance collateral and excludes CRE and TruP CDOs.

Using S&P data, we currently track 165 ABS CDOs totaling $185.9 billion that have tripped their event-of-default triggers between October 2007 and April 21, 2008. ABS CDOs in default represent 27% by count and 32% by volume of total ABS CDO issuance since 2004. In addition, these defaults equal 11% by count and 17% by volume of total CDO issuance. For vintage 2007, 59% by count and 63% by volume of ABS CDOs issued have tripped EOD triggers.

Credit Suisse - 12.7% of All Borrowers Will Be Foreclosed Upon

This little ditty below is one of the most aggressive foreclosure projections to date out of a large-named bank. Funny thing is, it goes hand-in-hand with my Subprime/ALT-A video in which I illustrate the overwhelming similarities between the two universes. YouTube Link... MR MORTGAGE - FUTURE ALT-A CRISIS EXPOSED . For the record, I think they are being conservative but '12.7% of all residential borrowers losing their homes' is quite a thought. -Best, Mr Mortgage

From Reuters: Foreclosures to affect 6.5 mln loans by 2012-report

Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012. The foreclosures could put 12.7 percent of all residential borrowers out of their homes .

Credit Suisse expects home prices will fall by 10 percent in 2008 and 5 percent in 2009, before rebounding. The forecast includes the 1.2 million homes currently in foreclosure or already bank Real Estate Owned (REO). Credit Suisse sees 2008 as the peak year for foreclosures, even though they see the price bottom (25% off the peak) in 2009. The normal pattern is for the foreclosure activity to peak in the same year as housing prices bottom.

Of the 1.2 million current foreclosures, Credit Suisse estimates about half are due to subprime borrowers, and about half other borrowers (alt-A, prime). Although Credit Suisse expects a much higher percentage of subprime borrowers in foreclosure, the pool of other borrowers is much larger, and Credit Suisse expects close to 4 million other borrowers to lose their homes to foreclosure through 2012.

http://www.reuters.com/article/bondsNews/idUSN2233380820080422

Mortgage Applications Plunge As Rates Soar

Good Morning. When rates click over 5.75%, applications slow and over 6% on 30-year fixed product, the mortgage market seizes. In the good 'ol days, exotic programs would fill the void because many programs, such the Pay Option ARM, were impervious to rate increases...remember it is all about the monthly payment. Two things to consider here when reading the link below; the 6.04% average rate they quote is not reality because at 'no-points' it is closer to 6.25% on a $417k loan and 7.0% on an new Agency 'Con'-Jumbo; and the number of applications that actually close remains extremely low, hovering around 40% from research I have done at four national banks.

This ties in nicely with the report I posted a few days back that was highly ridiculed by some but now looks extremely accurate and foresighted called 'NEW FANNIE/FREDDIE 'CON' JUMBOS ALREADY A BUST' http://mrmortgage.typepad.com/blog/2008/04/new-fanniefredd.html - Best, Mr Mortgage

*(Reuters) NEW YORK - Mortgage applications plunged last week, largely reflecting a drop in demand for home refinancing loans as interest rates surged, an industry group said on Wednesday. http://www.reuters.com/article/ousiv/idUSNAT00395920080423?sp=true

4/22 MAR EXISTING HOME SALES...The Story Within the Report

4/22 - YOUTUBE VIDEO VERSION - http://www.youtube.com/watch?v=xi76bemJECU

This morning's Existing Home Sales report, while on the surface may have looked to be stabilizing, was as ugly as can be even though the headlines only say a "2% drop". March Existing Home Sales Data - NAR

The story within the story is that prices continue to plummet caused by foreclosure sales, which if sold by a Realtor, get counted in the number. Datquick estimates that 38.4% of all March home sales were from foreclosure stock. Most do not know this. REO/Foreclosure sales have picked up in count due to the massive inventory banks hold. These homes sell for a 20-60% discount. As REO sales grow, prices will come down even further. Right now, banks are only selling a small fraction of their REO mostly through large auction aggregators such as Real Estate Disposition Corp (REDC). 

CNBC's Dennis Kneale loves to talk about what a great thing this is, however, I see it differently. I see it as where one person gets a great deal buying a fire-sake auction home, while everyone in their neighborhood takes a bloodbath due to the price that one person paid. Remember, home values are based upon comparable sales within a small, defined area. I know many of you will say 'the buyer sets the price so the price is what it would have been anyway'. I say that never before have we seen an economic wildcard in banks releasing inventory slowly (for now) and pricing it at such deep discounts in order to get the inventory off the books as quickly as possible.

On the Jumbo front, prices were down roughly 8.5% nationally and 15% in the Western Region. Dataquick says over half the median drop in prices were due to the lack of jumbo loan financing. Jumbos accounted for just 14% from 38% last year. This is significant. As prices drop, more home owners go into a negative equity position causing more loans to default. The snowball is picking up steam and equity is evaporating quicker than ever.

The only way out off all of this remains a national reduction of mortgage balances for everyone. They will figure it out later than sooner I am sure. -Best, Mr Mortgage

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BLOOMBERG - U.S. Economy: Sales of Existing Homes Fell in March (Update1)

By Shobhana Chandra

April 22 (Bloomberg) -- The two-year U.S. housing slump showed no sign of abating in March as sales of previously owned homes fell for the seventh time in eight months.            

Purchases dropped 2 percent, less than forecast, to an annual rate of 4.93 million, from 5.03 million in February, the National Association of Realtors said today in Washington. The median sales price declined 7.7 percent from a year earlier. Bloomberg report - Left out foreclosure sale info

NOT SO FAST...below is the Dataquick CA report for March. You can get other States there as well. Very good info.

Dataquick Information services - April 17, 2008

A total of 24,565 new and resale houses and condos were sold statewide last month. That makes it the slowest March in DataQuick's records, which go back to 1988. Sales were up 19.8 percent from 20,513 in February and down 38.3 percent from 39,811 for March last year.

Of the homes sold in March, 38.4 percent were foreclosure resales.

Dataquick California March 2008 Home Sales

HOME EQUITY LOAN DELINQUENCIES SURGE...S&P, BofA and Fitch Concur

YouTube Video Link - http://www.youtube.com/watch?v=3NOHJPxGGlk - S&P, BofA and Fitch all concur that the 'Home Equity Implosion' is knocking on, or kicking down rather, the front door.

The delinquency and default crisis with Home Equity Lines/Loans will only grow from here. It is the 'negative equity effect' in full force...many people just will not continue to pay for a massively depreciating asset, especially in cases when the first mortgage maybe an exotic where the payments are increasing!

The update from S&P below came out this morning. On its own it doesn't say much unless you track such things. But when combined with what BofA said in its earnings call this morning and with what Fitch said last month about big banks deadly home equity exposure, it provides a clear path to where all of this is headed - home equity lines/loans are right up there with the Pay Option ARMs as being the next big 'implosion'.

Our nations largest banks holds the majority of these loans. Click the links below and it will all become clear.

Consumers...there maybe relief for you coming soon if you have a home equity loan!

Standard & Poors Home Equity Update Released Today

Download FITCH_HOME_EQUITY_WOES.2008.03.14.pdf

BofA Earnings Call Excerpts...

"Credit quality in our consumer real estate business mainly home equity deteriorated sharply. The problems to date have been centered in higher LTV home equity loans. Our largest concentrations are in California and Florida [40% of portfolio]. 82% of the net charge offs related to loans where the borrower was delinquent and had little or no equity in the home. Loans with the greater than 90% CLTV on a refreshed basis currently represent 26% of loans versus 21% in the fourth quarter. We believe net charge offices in home equity will continue to rise given softness in the real estate values and seasoning in the portfolio. Two issues that is playing home equity and could drive losses are a prolonged deterioration in home values and further deterioration in the economy."