The Theroxylandr in Flame

I was extremely pleased with today Bernanke speech. Finally, instead of the regular Elmer Greenspan bu11shit I hear the words of the honest and responsible man whose mouth is not full of hair after kissing the Dubya Bush ass.

Tonight WaMu posted quite bad earnings and missed estimates. About subprimes:

Credit quality at the Seattle lender was a damper to earnings. WaMu said the subprime mortgage industry “significantly weakened” during the fourth quarter and negatively impacted the company’s pretax earnings by approximately $160 million.

More here:

Fourth-quarter results from several banks suggest the benign credit environment of recent years has begun to deteriorate and could restrain future earnings, analysts said on Wednesday.

…

“Credit has been tailwind for this industry for several years, but it’s becoming a slight headwind now,” James Ackor, an analyst who covers IndyMac and other lenders at RBC Capital Markets, said.

“Credit has been so good for so long — particularly in the mortgage market, which has been supported by an incredibly robust housing market,” Ackor added. “Credit being cyclical and with a deterioration in pockets of the housing market, it stands to reason that the environment will deteriorate.”

Suppose the person who needs a mortgage doesn’t have a downpayment. What to do? Found on message board:

myrealtycapital.com: Anyone used this company? They offer downpayment assistance to borrowers who don’t have the 5-10% needed to put down. I talked with one of their reps and he stated, “We deposit the 5-10% downpayment amount into the borrowers bank account before closing. At closing the seller pays the 5-10% back to myrealtycapital with a fee of around 10% of the amount needed.”

Sounds like a great idea however I’m leary of being the guinea pig. Anyone else used this company?

And:

My understanding of the program is the seller would first be made aware that the buyer can only qualify with a 5-10% downpayment. Before anything can happen the seller must agree to pay back the 5-10% downpayment plus the 10% fee back to myrealtycapital at closing. If the seller agrees then the transaction can proceed. All that’s really happening is the seller is subtracting 5-10% plus 10% fee from their proceeds. Keep in mind I have never used this service. I am just inquiring to see if anyone else has experience using this company

Is it just scam or I’m getting paranoid?

Just a picture and no words:

Edit: adding historic picture as PDXrenter asked me:

As the mortgage implodometer just ticked from 9 to 10, I want to re-re-post a great comment from Tanta from Calculated Risk:

Cal, you want to be careful about the boldface delinquency percentages in the Piggington piece. (Of course you probably already know this, but some people who aren’t used to looking at seasoned securities get confused by it.) The issue is whether you’re using current pool balance or original pool balance: those delinquency percentages in the twenties are based on current pool balances, after prepayments have been applied (hence on a much lower balance). They aren’t pretty, of course, hence the downgrade, but if you want to gauge the general credit quality of the whole pool of loans that went into the security, you look at percentage delinquent of original balance. Percentage of current balance will tell you what the security is worth today and what its prospects are for getting over its interest shortfall problems–precious little, as far as I can see. All seasoned mortgage-backed securities end up eventually with an extremely high percentage of delinquent loans, as the performing loans pay off out of the pool and the nonperforming loans can’t (unless and until they foreclose). The problem with these pools seems to be that the delinquencies and losses came so early in the life of the pool that overcollateralization (excess interest) didn’t build up sufficiently to cover them. That’s really the important point for me, since I’ve spent the last couple years being patronized by mortgage bulls who keep ’splainin’ to me that all risk has been priced properly. It certainly might have been “proper” if those loans had simply decided to perform on a historically “normal” curve–no significant losses and limited prepayments until after the first two or three years, leaving time for excess spread to accumulate–but strangely enough, historically-unprecedented lending standards (which include more than usual refi opportunities, as “affordability products” substitute for rate reductions) have resulted in a historically-unprecedented accelerated loss curve. I am shocked, I tell you, to discover that every risk got priced into these puppies except the risk that risk-based pricing itself would cannibalize the securities past the point of recovery. I can’t wait to hear the arguments over this lunch tab (”Wait a minute, I didn’t get the Option ARM platter, I only ordered a HELOC appetizer and a Diet FRM. I’m not paying for your lunch. And surely we don’t have to tip the waiter . . . I heard they got record Christmas bonuses . . . does anyone have change for a five? I seem to be a little bit short . . .

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

• Fitch Takes Various Actions on 2 Terwin Mortgage Trusts
• Fitch Affirms 8 & Downgrades 7 RMBS Classes From 3 CDC Mortgage Capital Trust Issues
• Fitch Affirms 13 & Downgrades 7 RMBS Classes from 2 SAIL Securitizations
• Fitch Affirms 23, Downgrades 2 & Places 1 on Watch Negative from 2 SASCO Securitizations
• Fitch Downgrades 4, Affirms 17, & Places 1 Class on Rating Watch Negative from 3 Ameriquest Issues

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.

More:

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.

Now new company “Apple Inc.” has the same OS on the portable phone devices as they have on the 4-way Xeon 64-bit server.

Imagine a car company that can use the same engine and platform for all its cars from motorcycles to trailer trucks and just put a different body around it. That’s exactly what it is.

This week the ABX.HE index that tracks the health of secondary market of mortgage derivatives made another horrible drop:

I would expect spectacular losses for all subprime originators as soon as they report. Contrywide is reporting Jan. 30 and it’s management is exercising options in a hurry.

But the first one, I think, is Wells Fargo, reporting Jan. 16. Let see what they have to say.

Economy added 167,000 jobs in December

• What’s good: economy is holding relatively well
• What’s bad: inflation pressure remains, so there is no reduction in mortgage rates in sight, keeping RE well above affordability
• What will happen: stronger dollar creates good opportunities to buy international stocks

What jobs were growing?

• Information services +12k
• Finance and insurance +9k
• Administrative and support services +24k
• Services to buildings and dwellings +13k
• Health care and social assistance +38k
• Food services and drinking places +22k

What are the biggest losers?

• Goods-producing -11k
• Residential specialty trade contractors -10k
• Retail trade -9k

So the surprise happened mostly because the good weather let us to delay the pending layoffs in construction. We shop less, but we drink more. And we are sick.