[LA_Renter]

A good bellwether to follow on high quality jumbo loans is Thornburg Mortgage which is getting slammed right now on Wall Street

“AP
Thornburg Shares Hit 52-Week Low
Monday August 13, 1:49 pm ET
Thornburg Shares Fall on Lower Credit Rating and Mortgage Market Worries, Hit 52-Week Low

NEW YORK (AP) — Shares of Thornburg Mortgage Inc., a prime mortgage lender and real estate investment trust, fell in Monday trading after Standard & Poor’s downgraded its credit rating Friday and as concerns in the mortgage market persist.’

>

“Despite the fact that Thornburg has executed well on its strategy to underwrite, purchase, and hold extremely high quality assets, it appears lenders are not differentiating,” among mortgage products, Hochstim wrote in the note. “Thus, Thornburg may be getting very little credit for its careful management of credit risk.”

http://biz.yahoo.com/ap/070813/thornburg_mortgage_mover.html?.v=1

If these guys are having problems then they are all having problems.

[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.

[LA_Renter]

Chris,

in regards to “Once the secondary market unfreezes, rates will go back down”

Right now the secondary market is frozen due to market losses on mortgage and other derivatives which merely anticipate the actual credit losses from defaults and foreclosures, the markets will not know the true magnitude of these actual losses until late 2008. That is the key problem here. Until the market can determine with any accuracy the degree of what these losses are the secondary market will remain frozen. That will more than likely continue for the balance of this year and into much of next year. This is not a temporary blip. I guess I would like to know why you think the markets will become unfrozen in the near term or what time line are you speaking of?

[LA_Renter]

Chris,

in regards to “Once the secondary market unfreezes, rates will go back down”

Right now the secondary market is frozen due to market losses on mortgage and other derivatives which merely anticipate the actual credit losses from defaults and foreclosures, the markets will not know the true magnitude of these actual losses until late 2008. That is the key problem here. Until the market can determine with any accuracy the degree of what these losses are the secondary market will remain frozen. That will more than likely continue for the balance of this year and into much of next year. This is not a temporary blip. I guess I would like to know why you think the markets will become unfrozen in the near term or what time line are you speaking of?

[LA_Renter]

Chris,

in regards to “Once the secondary market unfreezes, rates will go back down”

Right now the secondary market is frozen due to market losses on mortgage and other derivatives which merely anticipate the actual credit losses from defaults and foreclosures, the markets will not know the true magnitude of these actual losses until late 2008. That is the key problem here. Until the market can determine with any accuracy the degree of what these losses are the secondary market will remain frozen. That will more than likely continue for the balance of this year and into much of next year. This is not a temporary blip. I guess I would like to know why you think the markets will become unfrozen in the near term or what time line are you speaking of?

[LA_Renter]

Thanks Josh!

[LA_Renter]

Thanks Josh!

[LA_Renter]

Thanks Josh!

[LA_Renter]

Along the topic of credit tightening, does anybody have info on what percentage of the loans, loans that made California home values possible (subprime, ALT-A, Jumbo), have been pulled from the market or are have experienced rate increases as a result of the recent credit crunch. Regarding the higher end markets I keep hearing Jumbo loans have jumped about 100 basis points unless you have the creme la creme of credit ratings. I would say the vast majority of loans in the nicer areas are jumbo…..that has to hurt.

[LA_Renter]

Along the topic of credit tightening, does anybody have info on what percentage of the loans, loans that made California home values possible (subprime, ALT-A, Jumbo), have been pulled from the market or are have experienced rate increases as a result of the recent credit crunch. Regarding the higher end markets I keep hearing Jumbo loans have jumped about 100 basis points unless you have the creme la creme of credit ratings. I would say the vast majority of loans in the nicer areas are jumbo…..that has to hurt.

[LA_Renter]

Along the topic of credit tightening, does anybody have info on what percentage of the loans, loans that made California home values possible (subprime, ALT-A, Jumbo), have been pulled from the market or are have experienced rate increases as a result of the recent credit crunch. Regarding the higher end markets I keep hearing Jumbo loans have jumped about 100 basis points unless you have the creme la creme of credit ratings. I would say the vast majority of loans in the nicer areas are jumbo…..that has to hurt.

[LA_Renter]

My understanding is that the primary reason the Fed stepped in late last week was because, given the amount of bad paper out there, the banks no longer trust each other and are pricing in a risk of bankruptcy when they loan each other money, so the overnight funds rate shot up to 6% where the Fed has it targeted to 5.25%. After the FED injected liquidity the overnight rate came back down to in between 5 and 5.25. They targeted MBS because that is the source of the problem. As we go into Monday if the Asian markets act unsettled and that spreads to Europe and the overnight rates jumps back above 5.25% many people speculate the FED will forgo any additional liquidity injections and call an emergency meeting. The consensus is that if the FED lowers it will more than likely be 50 basis points with another 25 to 50 basis points in Sept. IMO if you see that happen in the face of a structurally weak dollar that means the situation is very grave. Here is a quote from Doug Noland concerning the severe state of the credit markets on a post I made last week

“I apologize for appearing overly dramatic. But this evening I have nagging feelings that for me recall the disturbing emotions following the terrible 9/11 tragedy. I know the world has changed and changed for the worse – yet I recognize that I don’t know how and to what extent”

Interesting that Europe, Japan, and the US all injected liquidity at the same time this week, the last time that happened was after 9/11. IMO everybody should be paying very very close attention to this.

[LA_Renter]

My understanding is that the primary reason the Fed stepped in late last week was because, given the amount of bad paper out there, the banks no longer trust each other and are pricing in a risk of bankruptcy when they loan each other money, so the overnight funds rate shot up to 6% where the Fed has it targeted to 5.25%. After the FED injected liquidity the overnight rate came back down to in between 5 and 5.25. They targeted MBS because that is the source of the problem. As we go into Monday if the Asian markets act unsettled and that spreads to Europe and the overnight rates jumps back above 5.25% many people speculate the FED will forgo any additional liquidity injections and call an emergency meeting. The consensus is that if the FED lowers it will more than likely be 50 basis points with another 25 to 50 basis points in Sept. IMO if you see that happen in the face of a structurally weak dollar that means the situation is very grave. Here is a quote from Doug Noland concerning the severe state of the credit markets on a post I made last week

“I apologize for appearing overly dramatic. But this evening I have nagging feelings that for me recall the disturbing emotions following the terrible 9/11 tragedy. I know the world has changed and changed for the worse – yet I recognize that I don’t know how and to what extent”

Interesting that Europe, Japan, and the US all injected liquidity at the same time this week, the last time that happened was after 9/11. IMO everybody should be paying very very close attention to this.

[Author]

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