[stansd]

I have no knowledge of how high the quality of this information is, but this seems like a good source:

http://www.foreclosureforum.com/stats.html

Stan

[stansd]

I have no knowledge of how high the quality of this information is, but this seems like a good source:

http://www.foreclosureforum.com/stats.html

Stan

[stansd]

Can anyone help with how we can see this credit contraction in terms of hard data? Ratings cuts don’t mean anything until they (inevitably) manifest themselves in higher interest rates or more loan application rejections.

Any thoughts out there on what metrics we can follow to see this occur? Is there a subprime interest rate index that we could track the progress of? Is Subprime mortgage origination dollars the appropriate metric, and if so, where can one find a monthly report on that?

I agree with everyone here that the downgrades are a very big deal-not in and of themselves, but because of the secondary and tertiary effects…on that note, amazing how quickly S&P, Moody’s, and Fitch jumped on this when the publicity about the magnitude of the coming debacle started to hit the major news agencies (look at the increasing familiarity of the news agencies writing articles linked on patrick.net over the last month). I can see this as nothing more than a johnny come lately attempt to save their asses from the huge string of lawsuits that will invevitably be coming their way in the next 3 years.

Stan

[stansd]

Can anyone help with how we can see this credit contraction in terms of hard data? Ratings cuts don’t mean anything until they (inevitably) manifest themselves in higher interest rates or more loan application rejections.

Any thoughts out there on what metrics we can follow to see this occur? Is there a subprime interest rate index that we could track the progress of? Is Subprime mortgage origination dollars the appropriate metric, and if so, where can one find a monthly report on that?

I agree with everyone here that the downgrades are a very big deal-not in and of themselves, but because of the secondary and tertiary effects…on that note, amazing how quickly S&P, Moody’s, and Fitch jumped on this when the publicity about the magnitude of the coming debacle started to hit the major news agencies (look at the increasing familiarity of the news agencies writing articles linked on patrick.net over the last month). I can see this as nothing more than a johnny come lately attempt to save their asses from the huge string of lawsuits that will invevitably be coming their way in the next 3 years.

Stan

[stansd]

When I was in Business School 4 years ago, one of my professors would often talk about the accounting mess, lax controls, lack of risk management, and huge risk of fannie and freddie…I thought it was odd at the time, now I see how prescient the guy was.

Stan

[stansd]

When I was in Business School 4 years ago, one of my professors would often talk about the accounting mess, lax controls, lack of risk management, and huge risk of fannie and freddie…I thought it was odd at the time, now I see how prescient the guy was.

Stan

[stansd]

This is very different from what I’ve heard and read. From what I’ve read (economist and other sources), management in LBO’s is compensated quite handsomely. This is happening to the degree that some public companies with more shareholder scrutiny are having trouble retaining talent because they are having to compete with LBO shops that don’t have the same restrictions.

Also remember that LBO’s only make you rich if you can service the debt and have some left over. You want the incentives of the management team to be aligned with those of the investor. Equity stakes with attractive payoffs insure that.

I wonder if some of the angst you are hearing is from management teams of poorly performing LBO targets. It’s a bit like a lottery-payoff of average performance isn’t goign to knock your socks off, but the upside is tremendous.

Stan

[stansd]

This is very different from what I’ve heard and read. From what I’ve read (economist and other sources), management in LBO’s is compensated quite handsomely. This is happening to the degree that some public companies with more shareholder scrutiny are having trouble retaining talent because they are having to compete with LBO shops that don’t have the same restrictions.

Also remember that LBO’s only make you rich if you can service the debt and have some left over. You want the incentives of the management team to be aligned with those of the investor. Equity stakes with attractive payoffs insure that.

I wonder if some of the angst you are hearing is from management teams of poorly performing LBO targets. It’s a bit like a lottery-payoff of average performance isn’t goign to knock your socks off, but the upside is tremendous.

Stan

[stansd]

I-Banks use “cash flow waterfalls” (first senior tranches are paid, then mezzanine, then equity) and sometimes the flow of principal and interest is also separated.

I do assume that the overall pool is backed by $100 in equity, but when you get into the specific tranches, that concept gets a bit muddy because of the seniority structure of the tranches. You essentially buying cash flow streams of increasing risk-the lower tranches effectively have lower equity backing because the higher rated tranches get all the equity when things go south.

A 30% decline in home prices in and of itself, does nothing to the CDO. Its effect comes as the 30% drives up the default rates, so the impact there is real.

It’s true, then that a 30% decline in home prices would wipe many of the lower tranches out in their entirety (assuming it pushes defaults up)…my point is just that there are many that would not be wiped out-the impact is still huge, it just needs to be kept in perspective.

Stan

[stansd]

I-Banks use “cash flow waterfalls” (first senior tranches are paid, then mezzanine, then equity) and sometimes the flow of principal and interest is also separated.

I do assume that the overall pool is backed by $100 in equity, but when you get into the specific tranches, that concept gets a bit muddy because of the seniority structure of the tranches. You essentially buying cash flow streams of increasing risk-the lower tranches effectively have lower equity backing because the higher rated tranches get all the equity when things go south.

A 30% decline in home prices in and of itself, does nothing to the CDO. Its effect comes as the 30% drives up the default rates, so the impact there is real.

It’s true, then that a 30% decline in home prices would wipe many of the lower tranches out in their entirety (assuming it pushes defaults up)…my point is just that there are many that would not be wiped out-the impact is still huge, it just needs to be kept in perspective.

Stan

[stansd]

Totally agree, and have been watching the LBO market carefully through the same set of eyes (especially some of the failed issues in recent weeks)…The world is awash in liquidity. I tend to be a bit Austrian in my economic thought and the potential danger of this is not at all lost on me.

In my mind, this would be a big chunk of the fuel that causes a severe correction in housing…was just pointing out that even in a severe correction, the impact while severe on those holding the lower tranche bag (or the house owner losing her house) is likely more localized than we sometimes assume.

Stan

[stansd]

Totally agree, and have been watching the LBO market carefully through the same set of eyes (especially some of the failed issues in recent weeks)…The world is awash in liquidity. I tend to be a bit Austrian in my economic thought and the potential danger of this is not at all lost on me.

In my mind, this would be a big chunk of the fuel that causes a severe correction in housing…was just pointing out that even in a severe correction, the impact while severe on those holding the lower tranche bag (or the house owner losing her house) is likely more localized than we sometimes assume.

Stan

[stansd]

Yes, literally a check at closing. I think the broker was planning to submit a 1099…not sure how they squared away the tax implications.

Stan

[stansd]

Yes, literally a check at closing. I think the broker was planning to submit a 1099…not sure how they squared away the tax implications.

Stan

[stansd]

I have 2 friends who recently bought or sold houses. In 3/3 cases, cash back was involved.

In the first, it was a 545K sale in Escondido. Cash back was 5K.

What was really intestesting was the condo this guy sold at the same time to move into the 545K house. Listed last year at 390K. Sold for 350K with 10K cash back (for the bears on the site, that’s well over a 10% decline). Buyer even lobbied for a higher sales price with more cash back because they were taking out a 100% interest only loan apparently at their limit. Needed Cash back for closing costs. I told my friend this was very shady. I was glad to hear, though that they reported it to the lender. Problem became that the lender saw the amount as excessive, so they were in escrow and the lender says it’s too much, deal is off if it’s that much (I think 2% was their limit).

The solution: Extra cash given to broker who then rebates back to the buyer his/her sales commission.

Very, Very, Very shady.

The third was a roughly 540K sale in 4S. Cash back was nearly 5K, and there was also an allowance for new carpeting.

Base on these data points, and the house I am renting: listed for 600K at bubble peak, trimmed to 570K, didn’t sell, comparables at 500, zillow at 480, I think the market in RB is down a solid 10% from peak when all this washes through.

Stan

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