Weekend Mortgage Market Roundup, and My Own Thoughts on Where This is Headed
Given how busy the past week has been, there are so many stories out there that I simply didn't have time to cover in full depth. Here's a look at some items that didn't get to HW this week, but in any other week probably would have ... Moody's downgrades 86 percent of all second-lien securities it rated in 2006: Almost right after Fitch warned Thursday morning on every second-lien RMBS in its database from 2005 forward, Moody's went ahead and slashed ratings on $19.4 billion worth of second lien RMBS. Among the 691 downgrades, 228 were Aaa or Aa, with the agency citing "dramatically poor overall performance." Where was Poole?: The WSJ's Econ Blog says that when the FOMC voted to cut the discount rate, St. Louis Fed president Bill Poole wasn't there -- and a Fed spokesperson said Poole's now-infamous comments were his own, not speaking for the committee. Poole had said on an interview on Bloomberg TV that there was no need for the Fed to cut any rates, and no evidence that the mortgage crisis had impact the broader economy ... IndyMac, IndyMac, IndyMac: The (former?) Alt-A powerhouse has shifted its mix towards agency products -- no big surprise here -- but the company was clearly out to combat any negative halo put on it by Fitch's decision to throw ResCap and Countrywide's credit downgrades together with a negative watch issuance for the Pasadena, Calif.-based thrift. With ResCap downgraded to junk status, IndyMac clearly was caught in the investor crossfire. The company quickly posted a credit opinion from Standard and Poor's that affirmed IndyMac's stable outlook and investment-grade credit rating. The WSJ's Hank Greenberg weighs in on the company today as well, noting that the company's unabashed optimism will either be remembered as "hope or hype." Remember the NAR?: I took the NAR to task earlier this week for failing to do any sort of reliable analysis in its most recent quarterly existing home sales report -- a post that's certainly seen a lot of interest from the blogosphere and from the media (try more than 150,000 hits worth of interest). I actually wrote an email to the NAR's public relations department, to see if I could get the organization's senior economist Lawrence Yun to comment -- he didn't, of course, but I did get a response from a press representative that I'll publish Monday morning for HW readers. (Yun himself was too busy traveling). Stated Income, RIP: Morgan Brown over at Blown Mortage gets more than his fair share of "new requirements" notices, given that he runs his own mortgage company. Earlier in the week, he noted that IndyMac's new guidelines essentially remove stated income from the lending picture completely. I'm actually suprised that IndyMac -- or any other lender -- was still making these loans, even in the Alt-A credit space. I'd thought stated had gone away months ago, but perhaps that was just for subprime; and I'd thought that once the Alt-A market siezed up, stated loans would have been pulled immediately. Was IndyMac slow to the trigger on this? Crash = opportunity: KKR is looking to profit from current market woes, courting investors for at least $1 billion that will be used to have an existing hedge fund plunder the wreckage that is the current CDO and related ABS markets. It is what hedge funds do, after all. KKR is selling investors returns over 20 percent. It's not as if they're alone here, with Goldman Sachs doing essentially the same thing. More than a few Wall Street firms clearly think that the fundamentals don't justify the low valuations that are out there right now, and they're intending to put either their own or their investors' money where their collective mouths are. I'd expect to see similar pushes to buy in other markets, including those for whole loans and servicing portfolios -- American Home is set to auction off their servicing portfolio in the next few days, sources have said -- but the challenge, no matter the market, is going to be picking out the diamonds in the rough and identifying just where the value lies. (I'd offer my services towards that end, but I doubt anyone could afford me.) Bottom's up: Calculated Risk takes an interesting look at when we might see signs of a bottom -- at least for housing investment. (He takes pains to note that he's not calling a bottom here, but only discussing what might lie ahead for housing investment in the next 18 months). My sense on a more general, broad-measure recovery in housing is a little more hazy than I'd like. HW readers know that my viewpoint is tied inexorably to the underlying assets -- and that's the mortgages themselves. When I look at that, I see plenty of borrowers who will be hitting a wall this year and early next -- the 2005/2006 vintages won't be hitting that dreaded reset until later this year and into early next year. And when they do get there, they'll inevitably find that the credit they need is hard to come by; I further doubt you'll see Wall Street making a big jump into the deep end of that credit pool again any time in the next year or so. The question is how the overall economy holds up through this time -- weather it, and we'll be talking about a recovery for housing in 2009. And there is plenty that goes into "weathering" here that is both within and completely foreign to what actually takes place in the mortgage industry -- enough moving pieces to make me much more bearish than I might otherwise be. That being said, and knowing there are plenty of people who will disagree -- I do think we've seen investors being very quick with the trigger right now, and probably too quick; American Home is a perfect example. Default activity hadn't even had a chance to become a problem. It was the mere spectre of that problem that brought the company down to its knees, with investors flooding margin calls on assets that had been grossly devalued, and in all likelihood too much so. And it's precisely that sort of wreckage that has the KKRs of the world salivating right now.