Downgrade spree on mortgage papers « The Theroxylandr in Flame

Fitch went into downgrade spree recently. Various mortgage papers are going sour:

This all happened in the last two days. The intrigue of fast deterioration of subprime mortgage market is bringing news virtually every day.

Some quotes:

Approximately 20.8% of the pool for series 2003-BC8 is more than 60 days delinquent (including loans in Bankruptcy, Foreclosure and Real Estate Owned). The OC amount is currently $1,827,672 below its target amount of $5,417,847. In five of the past six months, the excess spread has not been sufficient to cover the monthly losses incurred. Monthly losses have averaged $395,332 for the past 3 months. Cumulative losses as a percent of the original collateral balance are 0.92%.

Now more on Ameriquest:

January 11, 2007 — J.P. Morgan Securities is shopping Ameriquest, one of the largest sub-prime mortgage lenders in the U.S., to bond hedge funds, sources said.

Ameriquest’s bankers have approached several buyers recently, including Ellington Capital Management, a large Old Greenwich, Conn.-based hedge fund, to gauge interest in bidding on the sub-prime lending giant.

Times have been tough – very tough – for lenders like Ameriquest. A bitter competition for higher-quality borrowers started in 2004 and forced the company and its competitors to cut mortgage fees and rates. Starting last year, concern over consumer default rates started to mount and then the yield curve turned against the company.

Officials from J.P. Morgan and Ameriquest declined comment.

Dave Kranzler Says:

January 11, 2007 at 5:56 pm

I used to analyze the Citiscape collateral trusts with my analyst back in my junk bond trading days cuz I had a huge short in Citiscape bonds. I believe “OC” means the “outstanding collateral.” the “target amount” is the amount the trust is overcollateralized in order to allow for losses or prepayments. If the trust is 33% below its overcollateralization bogey, that is disasterous for the bond holders of all but the highest rated layers. If the cumulative losses are .92%, that means the mortgage company that originated the loans and stuffed them into the trust is most likely making “make-whole” payments, PLUS, these trusts usually have a collateral/capital call on the originator if the trust starts experiencing losses beyond what is modelled into struture. At 20.8% deliquency and .92% cumulative losses, the trust sponser is no doubt making payments into the trust.

this trust is 2003 vintage. it would be nice to know who “BC” is, because that is most likely the originating mortgage firm. any trusts they have subsequent to 2003 are probably in worse shape, because, as we know, the overall credit quality of the mortgage pool has declined.

this problem is just now getting some recognition. it will be the financial equivalent of a nuclear war for our economy.