Facts? We don't need no stinking facts!:
The NAR's public awareness campaign for 2008
was unveiled this past week, and it showcases a new Web site -- http://www.housingmarketfacts.com
. A visit to the site shows numerous misspelled words, such as a front-page reference to "historical interests rates" -- but also couches the NAR's agenda as fact.
I especially liked the "fact" that says homeowners putting 10 percent down would be likely to see a 94 percent return on their investment within three years.
(hat tip to HW reader Toby)
A crisis by any other name:
Felix Salmon over at Portfolio.com weighs in
on whether what we're facing right now is a crisis or not -- and channels 1998:
The Russian crisis was a crisis, as was LTCM: both had very nasty global systemic implications. What we saw in 2007 was not a crisis. Will there be an actual crisis in 2008? No one knows.
I guess it all depends on how you define a crisis; Salmon defines it by the standard of "nasty global systemic implications." I tend to have a more narrow viewpoint, partly because I'm a mortgage guy and party because I think the implications Salmon's looking for aren't clear until after the fact.
With borrower defaults reaching all-time highs in certain credit categories and a near-historic failure of a large swath of lenders -- not to mention an entire secondary market currently in disarray -- I'd put what's taking place now as very much a crisis for the mortgage banking industry. From that vantage point, what's taking place now is every bit of a challenge for the industry as what took place in 1998.
Treasury Secretary Hank Paulson has gotten admittedly bearish, as published remarks
Monday attest. Numerous references to the spectre of "market failure" aren't the sort of thing you'd usually expect to see.
Paulson also said servicers are "moving to quickly implement the framework for streamlined refinancings and modifications announced by the American Securitization Forum," noting that implementation of the so-called HOPE NOW program is not a simple task. The Treasury chief said that most servicers will begin fast-tracking borrowers eligible for a rate-freeze in the next few weeks.
He also said that the HOPE NOW plan will be measured by "the number of avoidable foreclosures that are prevented, not by the number of refinancings or modifications with an interest rate freeze." It's an interesting point, even if it's probably political positioning. I'm not sure how one defines an "avoidable foreclosure" in practice.
For those still in need of details, click here
to read previous coverage of the program.
Where the rubber meets the road:
Since we're all about to get very cozy with loan modifications, Tanta at Calculated Risk highlights an American Banker story that gets to the nuts and bolts
On average, servicers are paid a fee of about 50 basis points annually for subprime loans in securitizations, Mr. Sepci said. "Traditionally in an adequately performing credit market, like 2004 or 2003 or even 2005," that rate "basically was fair and adequate compensation," but in the current environment, "for a lot of participants â€¦ maybe it's not enough."
For instance, "when you modify a loan, and you contact a borrower, basically re-underwrite the loan, and work with them through their issues, you're incurring costs of anywhere from $700 to $1,000 dollars per interaction," he said.
Tanta points out the unintentional comedy in the fact that the baseline for an "adequately performing" subprime market was the industry circa 2003-2005.
What's worth noting about the above with respect to HOPE NOW is that the entire idea of a "fast-tracked" modification program ends up being an exercise in up-front pain for servicers. Most in the industry that I've spoken to have wondered aloud about how many borrowers will actually qualify; the program essentially ends up freezing the "easy" cases, leaving servicers to deal with some unknown number of relatively "more difficult" cases up front.
If there are enough "more difficult" cases to deal with, you'll see servicing margins erode very quickly. Especially so if the American Banker story is correct and subprime servicing fees were established based on expectations from 2003-2005.
More on CDO downgrades:
Last week, I'd noted that Standard & Poor's downgraded $3.68 billion in mortgage CDOs
-- but that I couldn't find any information on the rating agency's site confirming what was downgraded. While no announcement of a downgrade was apparently made, HW reader Patrick
found an updated ratings action spreadsheet
(.xls format) which shows the downgrades made on January 3.
55 percent of all downgraded issuances were mezzanine-backed CDOs, while 33 percent were CDOs squared. 52 percent of all downgraded issuances had originally been graded AAA, as well.