Monday Morning Cup of Coffee: Can ResCap RMBS recoveries see an uptick?
Plus: The elusive millennial homebuyer
Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
ResCap liquidation units increased in price from $8 to about $13 in recent weeks, suggesting a total expected payment velocity of about $30 per unit, according to the latest Securitized Products Weekly report from Barclays. This implies a recovery of 6.4% on original RFC claims and 21.2% on original GMACM claims. That’s in addition to any payments received indirectly from monolines.
Barclays says that despite this increased claims value, the overall value of the payouts to RMBS holders still looks fairly small. They expect the payout for the representation and warranty breaches on the original list of deals to be about $506 million, with $113 million flowing to the GMAC deals.
This is on $7.9 billion and $534 million of original representations and warranties claims for an overall recovery rate of about 6.4% on RFC and 21% on GMAC deals. Of course some of the money paid on the other claims could also go to the same deals, but the other claims include a wider range of deals and cash-flow could be lost to other deals as a result.
The recent price rise is likely a result of increased expectations for rep and warranty payouts on a series of lawsuits filed recently by RFC against various third-party originators.
Barclays says it is premature to bake in higher recoveries, given the unresolved issue of statute of limitations and the lack of detail in these lawsuits.
In addition, any additional rep and warranty recoveries get allocated across all claims, as opposed to only on RMBS deals affected by the rep and warranty issues.
As such, Barclays believes that even $1 to $2 billion in rep and warranty recoveries would not change much for RFC backed non-agency deals, though it would be substantial to GMAC deal recoveries.
All eyes and ears turn to Federal Reserve Chair Janet Yellen this week, as she gives not one but two addresses, the first formal statements since her swearing in Feb. 3. Yellen will deliver her first semi-annual monetary policy testimony before the House Financial Services Committee in Washington on Tuesday, Feb. 11, at 10 a.m. ET. Her statement on monetary policy will be released that same morning at 8:30 a.m. ET.
Is there a bear hanging over our heads? (Not that ice-skating one from Friday’s opening ceremonies in Sochi that is giving us bad dreams.) As the economy is eased off monthly $85 billion injections, the question becomes, has the correction ended or is it just getting started? Lance Roberts at STAWealth Management asks if we’re seeing conditions ripen for a perfect storm of weak recovery, investors running for the hills (as they did last week resulting in the largest equity outflow in history) and other factors. Worth looking at to temper any overly bullish sentiments.
The challenges facing millennials forming new households (and thus buying into the housing market) is something we’ve covered extensively here at HousingWire, but this drill-down by Dr. Housing Bubble is definitely worth the time.
Finally, it’s a week of second-tier reports and indices that taken together – depending on what they show – could add up to a good cup of tea leaves: retail sales, industrial production, consumer comfort, consumer sentiment and the Red Book. So keep your ear to the ground and, like that police chief from the 1980s cop show used to say, “Be careful out there.”
The Federal Deposit Insurance Corp. did not close any banks this weekend.