Downgrades of $537 Billion of RMBS Highly Likely
From the ‘ouch’ files:
Standard & Poors has said it is highly likely that it will downgrade residential mortgage backed securities (RMBS), those securities have a current reported balance of $537.9 Billion (down from $962 Billion). The action, if taken, would downgrade 12,000 classes of prime, subprime, and Alt-A securities issued from 2005 through 2007.
It is the losses that these securities are experiencing that has put the downgrade in the category of ‘highly likely’.
And this from the New York Times:
[…]The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.
They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.
“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.” […]
The housing market will continue to deteriorate well into 2010, and perhaps even into 2011 before there is a significant bottom in housing prices. Nothing to date suggests that the housing market is recuperating from its drug induced (easy and unethical lending practices)high that the banks brought onto the market.
The patient (housing market) is still dying, however the banks and the Obama administration keep trying to pump more and more of the same drug that killed it in the first place, right into its heart.
Loss Projections For Jumbo RMBS Rises
Moody’s issued a substantial report after the market closed today. The report, which evaluates the loss projections for jumbo loans and the associated RMBS has been updated to reflect continued deterioration in the market.
Moody’’s Updates Loss Projections For ”05, ”06, ”07 and ”08 Jumbo Rmbs
- As a result, it has placed 4,988 tranches of Jumbo RMBS with an original balance of $240.7 billion and current outstanding balance of $173.3 billion, on review for possible downgrade.
- Approximately 70% of the senior securities issued in 2005 are expected to maintain investment grade ratings.
- The remaining senior securities from this vintage are expected to migrate to Ba/B ratings.
- A vast majority of the senior securities issued in 2006 are expected to migrate to a rating ranging from Baa1 to B3 or, in the case of about 35% of the senior securities, to ratings below B3.
- For senior securities issued in 2007, about 20% are expected to migrate to a Ba1-Ba3 rating.
- The majority of the senior securities from this vintage are expected to migrate to ratings below B3.
- In all cases, super senior bonds which are supported by other senior securities that are first in line to take losses once subordinate bonds are written down will benefit from the additional credit protection and could maintain investment grade ratings.
- Moody’’s concludes that in most cases, subordinate securities from 2006, 2007 and 2008 transactions will likely be completely written down.
- Moody’’s is likely to downgrade the ratings of these securities to Ca or C.
- The rating agency says that during the last six months, Jumbo mortgage loans backing 2005 to 2008 securitizations have shown substantial increases in serious delinquencies and decreases in prepayment rates — levels that are unprecedented for this asset class.
- Borrowers who are 60 or more days delinquent on their payments, have had foreclosure proceedings started against them or properties that are held for sale comprise 1.6%, 2.9%, 3.6% and 3.75% for the 2005, 2006, 2007 and 2008 vintages respectively.
- Moody’’s is estimating that eventual default rates for borrowers who become seriously delinquent by end of 2009 on jumbo pools from 2005, 2006, 2007 and 2008 vintages will be 2.3%, 3.9%, 5.0%, and 6.2% respectively (reported as a percentage of original pool balance).
- Because Moody’’s expects a further 11% decline in home prices, it has assumed average losses on defaulting jumbo mortgages to be approximately 40% — which is higher than historical severities.
Record Number of Homes Sit Vacant
Bloomberg Reports:
Sphere: Related ContentA record 19 million U.S. houses stood empty at the end of 2008 as banks seized homes faster than they could sell them and prices continued to fall.
The fourth quarter’s all-time high was 6.7 percent above a year ago when 17.8 million properties were vacant, the U.S. Census Bureau said in a report today. The vacancy rate, the share of empty homes for sale, rose to 2.9 percent in the last quarter, the most in data that goes back to 1956.
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