Mortgage Market Roundup
Before getting to some important items for your weekend reading, I wanted to thank everyone who has voiced their support for Housing Wire -- both in the past week, and pretty much every week. I've recieved messages like the below from many of you:
"I am a 25 year veteran of the mortgage banking industry, having held management positions with Freddie Mac, Fannie Mae, a PMI company, a title insurance company and a mortgage servicing company ... As a seasoned mortgage-head, I want to compliment you on an outstanding initiative with Housing Wire. It is my "go-to-source" for clear, fresh information and incisive analysis."It's amazingly humbling to have the virtual ear of so many who know so much. More rating downgrades: Guarantor ratings aside, there have been a slew of ratings downgrades this week -- the aggregate downgrades of various RMBS in the past 5 days alone have well exceeded $5 billion. Moody's downgraded 2002, 2004 and 2005 deals backed by subprime loans originated by Option One Mortage Corporation on Friday, totalling 29 tranches. Moody's also downgraded 73 tranches from thirteen WaMu Option ARM deals issued in 2006 and late 2005 -- and an additional 25 tranches were put under negative review due to "higher than anticipated rates of delinquency, foreclosure, and REO in the underlying collateral." HW readers know that I've been harping on underlying collateral since ... well, since I first started this project in December of last year. But there were plenty more downgrades as well beyond the ones above: Moody's will also review 69 classes from fourteen ACE Securities Corp deals, backed by home equity loans and issued in 2002, 2003, 2004, and 2005. This ends up being significant because of the vintages -- these are not the usual suspects, and seeing potential downgrades in deals that are supposedly seasoned should give well-trained ABS market participants reason for some pause. Bear Stearns saw 16 tranches from five different Option ARM deals issued in 2006 downgraded, too. And this is just some of Friday's activity. And just at Moody's. And just for RMBS. The list gets mindnumbingly long if you look at the entire week across all rating agencies, but a few trends are emerging: some older subprime deals are seeing downgrades; Alt-A downgrades are picking up steam; Option ARM deals are particularly gaining downward ratings pressure; and early returns on 2007 vintage deals, particularly in subprime, are looking absolutely horrible. Fitch, for example, downgraded the majority of a WaMu subprime deal issued in 2007 on Friday. Affirmations totalled $619.1 million and downgrades totalled $818.9 million, while $515.9 million was placed on Rating Watch Negative. The mortgages were all originated by now-defunct Long Beach Mortgage. I've been calling attention to the 2007 vintage for some time. This is just the latest in what will be a long string of downgrades around what, in my mind, should be the worst vintage in at least two decades. Is WaMu short-handed?: Joe Garrett weighs in on the long road ahead for WaMu over at MortgageNewsClips.com, something I've been hearing plenty about lately from various sources:
Washington Mutual has about $23-24 billion of capital. They also own $58 billion of Pay Option Arms, $19 billion of sub-prime loans originated by Long Beach ,$40 billion of credit card receivables, and $62 billion of HELOCs. So despite their having raised $2.5 billion of new capital this week, we have to ask: Is $2.5 billion enough?The blogging genius behind Accrued Interest thinks the answer is no, in a well-written treastise on the merits of proper capitalization. Can't say we're suprised: The Calculated Risk blog, citing CNBC, notes that Merrill Lynch could be facing fourth quarter write-downs of CDO and related investments that will be $4 to $6 billion more than originally expected. The interesting thing here is that the losses are getting so big that it's almost numbing to report the numbers. I have to remind myself multiple times each week that $1 billion dollars is a stunningly large amount of money. $6 billion? That's an entire economy disappearing almost overnight. Indymac program changes: Morgan over at Blown Mortgage covers some pretty dramatic changes at IndyMac, and not just the bank's debt downgrade to junk status; the Pasadena,Calif.-based thrift axed NINA (No Income, No Assets) loans, and maxed stated income lending out at 75% LTV, as well as essentially killing the hybrid option ARM. I've been suggesting for months now that part of the reason we're in for a longer ride than most of us might otherwise think is because most mortgage lenders simply couldn't go cold turkey when it came to the "good stuff." The fact that Indymac is just now getting around to canning their NINA program couldn't be stronger proof of this; and it's the latest proof yet of why the 2007 mortgage vintage, technically speaking, will suck. Badly. Speading holiday cheer (and eggnog lattes): There is a donations option on the right hand side of the Web site that a few readers this year have been kind enough to use. I do this because I love it, not for the money. Obviously. But some extra cash during the holiday season wouldn't hurt matters; my primal need for a daily eggnog latte this time of year is the stuff of legend among colleagues. Speaking of colleagues, you might want to consider linking up with me over on LinkedIn -- you'll just need to make use of my profile's email address, firstname.lastname@example.org. Have a great weekend -- see you Monday. Disclosure: the author owns various put option contracts on Washington Mutual.