Providing Stock Market Analysis and Economic Commentary without the Hype
While we are on the topic of the housing market, this is a good opportunity to remind you of just how the mortgages of your homes became the destruction of Wall Street. And why it is so absolutely important that the government inflate the housing bubble all over again.
PART 1
PART 2
Another one bites the dust… Capmark Investments LP files Chapter 11 bankruptcy, and updated commercial loan delinquency projections…
NEW YORK, Jan 15 (Reuters) – Capmark Investments LP, which said it manages more than $1.7 billion of equity real estate and mortgage-related investments, filed for bankruptcy protection on Friday, less than three months after its parent, Capmark Financial Group [CPFNG.UL], made its own filing.
The partnership once known as GMAC Institutional Advisors has more than $1 billion of assets and liabilities, according to its Chapter 11 petition filed with the U.S. bankruptcy court in Wilmington, Delaware.
Capmark Investments said it hired Lazard Freres & Co as its investment banker and financial adviser for the bankruptcy process. A spokesman for the partnership declined to comment.
Capmark Financial, a commercial real estate company, had sought protection from creditors on Oct. 25, wiping out the investments of several private equity firms including Kohlberg Kravis Roberts & Co [KKR.UL].
The company cited deteriorated financial and real estate market conditions and a lack of available capital for its filing, in which it reported $20.1 billion of assets and $21 billion of liabilities.[…] Source: Reuters
And while we are on the topic of mortgage related investments, take a look at the latest projections on commercial loan delinquencies issued today:
Moody’s: US CMBS loan delinquencies rise to 4.9%; 8%-9% rate expected by end of 2010.
Delinquencies on US CMBS loans in conduit/fusion deals ended 2009 at 4.9%, as measured by the Moody’s Delinquency Tracker (DQT). They began 2009 at 0.95% and therefore have increased five-fold during the year.
Moody’s has tonight updated the loss projections for subprime residential mortgage backed securities (RMBS) issued 2005 to 2007.
Moody’s Investors Service has revised its loss projections for US subprime residential mortgage backed securities (RMBS) issued between 2005 and 2007.
On average, Moody’s is now projecting cumulative losses of 18.7% for 2005 securitizations, 38.4% for 2006 securitizations, and 48.1% for 2007 securitizations, reported as a percentage of original balance.
As a result of the revision, Moody’s has now placed 5,698 tranches of subprime RMBS with an original balance of $584 Billion and outstanding balance of $319 Billion, on review for possible downgrade.
Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody’s believes the overhang of impending foreclosures will impact home prices negatively in the coming months.
This evening Moody’s has placed under review for downgrade hybrid and subordinated debt totaling $450 Billion of securities.
Moody”s Investors Service has placed under review for possible downgrade the ratings of 775 hybrid and subordinated debt securities issued by 170 bank families in 36 countries following a change to its rating methodology for these instruments.
The reviews follow the rating agency”s announcement that it has changed the way in which it rates these securities to take into account the fact that some recent government interventions in troubled banks have not helped, and have even been to the detriment of, the holders of these types of securities. For example, in some cases, support packages have been contingent upon a bank”s suspension of coupon payments on these instruments as a means to preserve capital.
I say again.. We keep being told that everything is getting better. This only shows more (not less) deterioration is taking place within the financial markets.
I have discussed in previous writings and even in some videos many months ago about what we now know regarding the mortgage industry (not that it is a frigging mess, that we ‘all’ know). Instead I am referring to how mortgages have been sold, packaged with others, sold again, split up amongst different pools and sold again and on and on. Your mortgage with a bank is nothing more than a piece of paper (and sometimes there is no paper!) that is traded, sold, and capitalized on by the banks leveraging against your home by such high amounts that even some loan sharks are envious of the banks.
Now that forclosures are hitting our economy in record numbers some are actually now questioning ‘where is my mortgage’?
You say this is silly, you send your monthly check to CitiBank, Bank of America, Wells Fargo or whatever bank. You think that just because you pay ‘them’ they actually have a mortgage note in a vault somewhere within their building. Nowadays chances are that the people you are paying may actually have no idea at all where your mortgage is. It may have been sold to a different institution. And in some cases the paperwork trail is so incomplete or vague (or even missing altogether) that determining where someones mortgage actually is may need CSI-Miami to track it down through intensive forsensic investigations.
This brings me to the case recently reported in the New York Times concerning a forclosure process where a laywer asked the mortgage company to ‘produce the mortgage’, in other words prove they had the right to foreclose on the property. And you know what? They had no clue where it was. The judge threw out the case and said that if a financial institution can’t locate a mortgage (proving they have a financial interest in the property) then they have no right to initate a foreclosure process.
[...]some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.
To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling — by a federal judge, no less — is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.
More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.[...] (source: NY Times – hat tip butch)
It is my strong view that the only institution that can start a foreclosure process is the institution that actually has the mortgage (electronic or otherwise), not the ‘servicer’ of the loan and not the mortgage company that sold it a part of a bundle. In this situation if a bank wants to foreclose on a property then ‘they’ should first be required to buy back the note, even if it means having to dig through the maze of mortgage securtizations to find it. It is only then that a bank or financial institution should have the right to even think about a foreclosure process.
Remember Wendy’s TV commercial from the early 80′s? “Wheres the Beef”! I think we can now establish a new line with the same sarcastic meaning…
“Wheres the Mortgage” ?
Do you ‘know’ where your mortgage is? It may not be where you think it is.
From the wire services:
S&P: 9,430 US ALT A RMBS CLASSES FROM ”05,”06,”07 ON WATCH NEG; THE AFFECTED CLASSES HAD AN ORIGINAL PAR AMOUNT OF ABOUT $552.8B AND HAVE A CURRENT PRINCIPAL BALANCE OF $445.4B
Standard & Poors has revised their loss assumptions for RMBS Prime and sub Prime:
Due to the generally poor outlook for the U.S. housing market, increased delinquencies and defaults, and residential inventory buildup, Standard & Poor”s is projecting that the underlying mortgage pools supporting subprime RMBS transactions issued in 2006 will experience aggregate cumulative losses ranging from 23% to 27% of the original principal balance, with an average of approximately 25%, and pools supporting transactions issued in 2007 will experience aggregate cumulative losses ranging from 28% to 32%, with an average of approximately 31%.
Additionally, Standard & Poor”s is projecting losses on the underlying mortgage pools supporting prime RMBS in the 0.04%-13.54% range, with an average of approximately 3.65% for 2006 transactions and 0.13%-19.52%, with an average of approximately 4.50% for 2007 transactions. The upper end of the loss ranges reflects the performance of a few outliers, while the majority of the transaction-specific loss projections are more closely distributed around the averages.
Where to begin…
First I will discuss some of today’s economic events then I’ll dive into the charts.
This morning we received additional confirmations that the housing market is still declining. The Case-Shiller 20-city price index dropped an additional 2.2% from the previous month, and is now down nearly 25% from the peak 2 years ago. No bottom is in sight yet, but the Government is trying to put in a temporary floor by throwing (our) money at it like mad.
Then came the consumer confidence reading of 38, and that was another record low. The monthly consumer confidence data comes from “The Conference Board” and has been used as a gauge of ‘real world’ economic conditions for many decades.
The Consumer Confidence Survey measures the level of confidence individual households have in the performance of the economy. Survey asks a nationwide representative sample of 5,000 households, of which approximately 3,500 respond. Households are asked five questions that include (1) a rating of business conditions in the household’s area, (2) a rating of business conditions in six months, (3) job availability in the area, (4) job availability in six months, and (5) family income in six months. The responses are seasonally adjusted. An index is constructed for each response and then a composite index is fashioned based on the responses. Two other indexes, one for an assessment of the present situation and one for expectations about the future, are also constructed. Expectations account for 60% of the index, while the current situation is responsible for the remaining 40%. In addition, indexes for the present and future economic situations are calculated for each of the nine Census divisions. In the base year, 1985, the value of the index was 100.
And just hours after GMAC was provided $5 Billion tax payer dollars they came out screaming loudly about how fast they will begin making new loans this morning. The fact that tax payer dollars are going to be used to backstop new car loans for GM car shoppers is bad enough. But what is even more disturbing is how GMAC plans to make new loans.
[...]The company will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago. [...]
A credit score of 621 is just one point above the classification of ‘sub prime borrowers’. GM will begin aggressively selling cars and trucks to people who are just an inch away from being sub prime quality borrowers. This in the face of rising unemployment and a deteriorating economy. This is set to be another round of defaults in the coming years and this time the damage from the resulting bad loans will be taken out of the tax payers pockets.
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