Oh my… Countrywide just set new rates (effective tomorrow)…

[Ozzie]

I agree that jumbo rates will come back down. CFC is in the lending business. The liquidity crunch will play out and there will be other lenders that will jump at the chance to undercut the rate gouging practices of Angelo and co.

This entire “credit crunch” is not really about subprime borrowers. It’s about the gamblers on Wall St. who made 1000 bets on every subprime mortgage and that multiplied the underlying, crappy asset. The creation of these derivatives and the inability of the rating agencies to be able to judge their actual worth (or to look the other way as they collected their fees and rated them as “A+ paper” so the traders could sell them) magnified the situation even further. A lot of people here harshly judge the borrowers who took out loans they couldn’t repay and I have no problem doing the same, but I have more contempt for the Wall Streeters who are getting killed.

[Bugs]

I agree that there is some fear of the unknown in play right now and we may be looking at a bit of a temporary spike. However, that which is currently unknown will eventually become known, and at that point the pricing on financing will reflect the perceived risks. I think it’s possible that the fear of the known may eventually prove itself worse than the fear of the unknown.

Foreclosures lag the Notice of Defaults (3-4 months minimum), which in turn lag the time period in which borrowers stop making payments (3 months minimum), which in turn lag the ARM resets as some borrowers attempt to make a go of it or unload their albatross. In other words, it takes at least 6 months before an ARM reset turns into a foreclosure and 4 more months before the total loss from that foreclosure can be tallied in the form of the REO sale.

The foreclosures we’re seeing at this moment are the results of ARMs that reset at the beginning of the year. These lenders won’t even see what their real rate of losses from this wave are until this time next year at the earliest. Up until then it’s all projections and guesswork. In other words, it will continue to be unknowable – and hence deniable – for another year yet, after which it will be knowable and undeniable.

The first wave of resets fluctuates a bit on the back end but it mostly doesn’t recede below it’s current level until July 2008, which means the numbers of foreclosures: a) will go up tremendously in the next 9 months, and b) will not drop below the current rate until mid-2009.

No matter how agressive the lenders get on their REOs they CANNOT clear all these properties out before the end of 2009, which overlaps the beginning of the second wave by about 6 months. The second wave is smaller than the first wave but it has a higher percentage of the most toxic loans, which I would assume would result in an even higher rate of loss (more of those borrowers defaulting) than that of the first wave.

At the same time the pricing structure is under pressure as a result of these distressed sellers, the buyers will also be making decisions of their own. People are slow but eventually they do tend to figure it out. More buyers will hang back further reducing the demand in the market – this will register on the demand side.

Increased seller motivation + decreased buyer motivation can only turn out the one way, which is declining prices on the transactions that do go off. It almost won’t matter how many people can pay, because those distressed transactions that do go off will be the ones that drive the bus.

Here’s my soundbite for the day:

Market value is not determined by the owners who can hold, it’s determined by the owners who sell and the buyers who buy.

The investors have to take that into account when pricing the financing. A constantly declining market increases their risk for losses no matter how good those borrowers look at the moment.

To sum it up, because of the damage to investor psychology resulting from their losses in the first wave, they’re going to see the damage that will ensue from the second wave coming before it hits and that “foresight” will subsequently be reinforced. I don’t think a lot of these investors will be back any time soon; at any rate, not with out requiring some significant returns to justify their risks. That’s going to cost.

[Bugs]

I agree that there is some fear of the unknown in play right now and we may be looking at a bit of a temporary spike. However, that which is currently unknown will eventually become known, and at that point the pricing on financing will reflect the perceived risks. I think it’s possible that the fear of the known may eventually prove itself worse than the fear of the unknown.

Foreclosures lag the Notice of Defaults (3-4 months minimum), which in turn lag the time period in which borrowers stop making payments (3 months minimum), which in turn lag the ARM resets as some borrowers attempt to make a go of it or unload their albatross. In other words, it takes at least 6 months before an ARM reset turns into a foreclosure and 4 more months before the total loss from that foreclosure can be tallied in the form of the REO sale.

The foreclosures we’re seeing at this moment are the results of ARMs that reset at the beginning of the year. These lenders won’t even see what their real rate of losses from this wave are until this time next year at the earliest. Up until then it’s all projections and guesswork. In other words, it will continue to be unknowable – and hence deniable – for another year yet, after which it will be knowable and undeniable.

The first wave of resets fluctuates a bit on the back end but it mostly doesn’t recede below it’s current level until July 2008, which means the numbers of foreclosures: a) will go up tremendously in the next 9 months, and b) will not drop below the current rate until mid-2009.

No matter how agressive the lenders get on their REOs they CANNOT clear all these properties out before the end of 2009, which overlaps the beginning of the second wave by about 6 months. The second wave is smaller than the first wave but it has a higher percentage of the most toxic loans, which I would assume would result in an even higher rate of loss (more of those borrowers defaulting) than that of the first wave.

At the same time the pricing structure is under pressure as a result of these distressed sellers, the buyers will also be making decisions of their own. People are slow but eventually they do tend to figure it out. More buyers will hang back further reducing the demand in the market – this will register on the demand side.

Increased seller motivation + decreased buyer motivation can only turn out the one way, which is declining prices on the transactions that do go off. It almost won’t matter how many people can pay, because those distressed transactions that do go off will be the ones that drive the bus.

Here’s my soundbite for the day:

Market value is not determined by the owners who can hold, it’s determined by the owners who sell and the buyers who buy.

The investors have to take that into account when pricing the financing. A constantly declining market increases their risk for losses no matter how good those borrowers look at the moment.

To sum it up, because of the damage to investor psychology resulting from their losses in the first wave, they’re going to see the damage that will ensue from the second wave coming before it hits and that “foresight” will subsequently be reinforced. I don’t think a lot of these investors will be back any time soon; at any rate, not with out requiring some significant returns to justify their risks. That’s going to cost.

[Bugs]

I agree that there is some fear of the unknown in play right now and we may be looking at a bit of a temporary spike. However, that which is currently unknown will eventually become known, and at that point the pricing on financing will reflect the perceived risks. I think it’s possible that the fear of the known may eventually prove itself worse than the fear of the unknown.

Foreclosures lag the Notice of Defaults (3-4 months minimum), which in turn lag the time period in which borrowers stop making payments (3 months minimum), which in turn lag the ARM resets as some borrowers attempt to make a go of it or unload their albatross. In other words, it takes at least 6 months before an ARM reset turns into a foreclosure and 4 more months before the total loss from that foreclosure can be tallied in the form of the REO sale.

The foreclosures we’re seeing at this moment are the results of ARMs that reset at the beginning of the year. These lenders won’t even see what their real rate of losses from this wave are until this time next year at the earliest. Up until then it’s all projections and guesswork. In other words, it will continue to be unknowable – and hence deniable – for another year yet, after which it will be knowable and undeniable.

The first wave of resets fluctuates a bit on the back end but it mostly doesn’t recede below it’s current level until July 2008, which means the numbers of foreclosures: a) will go up tremendously in the next 9 months, and b) will not drop below the current rate until mid-2009.

No matter how agressive the lenders get on their REOs they CANNOT clear all these properties out before the end of 2009, which overlaps the beginning of the second wave by about 6 months. The second wave is smaller than the first wave but it has a higher percentage of the most toxic loans, which I would assume would result in an even higher rate of loss (more of those borrowers defaulting) than that of the first wave.

At the same time the pricing structure is under pressure as a result of these distressed sellers, the buyers will also be making decisions of their own. People are slow but eventually they do tend to figure it out. More buyers will hang back further reducing the demand in the market – this will register on the demand side.

Increased seller motivation + decreased buyer motivation can only turn out the one way, which is declining prices on the transactions that do go off. It almost won’t matter how many people can pay, because those distressed transactions that do go off will be the ones that drive the bus.

Here’s my soundbite for the day:

Market value is not determined by the owners who can hold, it’s determined by the owners who sell and the buyers who buy.

The investors have to take that into account when pricing the financing. A constantly declining market increases their risk for losses no matter how good those borrowers look at the moment.

To sum it up, because of the damage to investor psychology resulting from their losses in the first wave, they’re going to see the damage that will ensue from the second wave coming before it hits and that “foresight” will subsequently be reinforced. I don’t think a lot of these investors will be back any time soon; at any rate, not with out requiring some significant returns to justify their risks. That’s going to cost.

[bsrsharma]

jumbo rates will come back down

May be; but may not be too. Much of these funds were overseas and only now they are waking up and smelling the MBS manure. US needs $2B per day of foreign cash to consume and with this snakebite, foreigners are going to be very suspicious. Watch them hide under the bed from most private sector debt. That means Jumbo rates for Jumbo loans.

[bsrsharma]

jumbo rates will come back down

May be; but may not be too. Much of these funds were overseas and only now they are waking up and smelling the MBS manure. US needs $2B per day of foreign cash to consume and with this snakebite, foreigners are going to be very suspicious. Watch them hide under the bed from most private sector debt. That means Jumbo rates for Jumbo loans.

[bsrsharma]

jumbo rates will come back down

May be; but may not be too. Much of these funds were overseas and only now they are waking up and smelling the MBS manure. US needs $2B per day of foreign cash to consume and with this snakebite, foreigners are going to be very suspicious. Watch them hide under the bed from most private sector debt. That means Jumbo rates for Jumbo loans.

[LA_Renter]

Here is an analogy of where we are today in the secondary markets. I like to think of these CDO’s as being a muffin, you take top quality eggs, flour sugar, butter, blueberries etc (good credit) plus a mystery ingredient (bad mortgages), you blend it all up, put into a cooking pan, bake it and you have a muffin. Then comes along Bear Stearns and they expose the mystery ingredient as being Cow Shit. Sure all the other ingredients are fine but who wants to eat a muffin that has Cow Shit in it. The people who were eating these muffins are now throwing up and all the other customers now refuse to take one step inside the bakery that had these muffins on display. Thats pretty much where we are today. The secondary market will remain locked up until we can identify how much Cow shit is out there and in which muffins they were put into. Until then people are simply not going to eat Cow shit muffins.

[LA_Renter]

Here is an analogy of where we are today in the secondary markets. I like to think of these CDO’s as being a muffin, you take top quality eggs, flour sugar, butter, blueberries etc (good credit) plus a mystery ingredient (bad mortgages), you blend it all up, put into a cooking pan, bake it and you have a muffin. Then comes along Bear Stearns and they expose the mystery ingredient as being Cow Shit. Sure all the other ingredients are fine but who wants to eat a muffin that has Cow Shit in it. The people who were eating these muffins are now throwing up and all the other customers now refuse to take one step inside the bakery that had these muffins on display. Thats pretty much where we are today. The secondary market will remain locked up until we can identify how much Cow shit is out there and in which muffins they were put into. Until then people are simply not going to eat Cow shit muffins.

[LA_Renter]

Here is an analogy of where we are today in the secondary markets. I like to think of these CDO’s as being a muffin, you take top quality eggs, flour sugar, butter, blueberries etc (good credit) plus a mystery ingredient (bad mortgages), you blend it all up, put into a cooking pan, bake it and you have a muffin. Then comes along Bear Stearns and they expose the mystery ingredient as being Cow Shit. Sure all the other ingredients are fine but who wants to eat a muffin that has Cow Shit in it. The people who were eating these muffins are now throwing up and all the other customers now refuse to take one step inside the bakery that had these muffins on display. Thats pretty much where we are today. The secondary market will remain locked up until we can identify how much Cow shit is out there and in which muffins they were put into. Until then people are simply not going to eat Cow shit muffins.

[bsrsharma]

mystery ingredient as being Cow Shit

Great analogy LAR. You summarized the entire US debt market beautifully!

[bsrsharma]

mystery ingredient as being Cow Shit

Great analogy LAR. You summarized the entire US debt market beautifully!

[bsrsharma]

mystery ingredient as being Cow Shit

Great analogy LAR. You summarized the entire US debt market beautifully!

[Arraya]

haha… Great analogy LA!

I think some of the eggs my be rotten too, time will tell they are analyizing the ingredients very closely now.

[Arraya]

haha… Great analogy LA!

I think some of the eggs my be rotten too, time will tell they are analyizing the ingredients very closely now.

[Author]

Posts