Rebel Traders – Analysis Without The Hype

The Cash for Clunkers program that resulted in a temporary surge in automobile sales in the recent months has created a nasty side effect -  more delinquent payments.

Higher credit risk buyers who used the government’s cash-for-clunkers program last year to buy a new car had higher repossession and late payment rates than those who didn’t use the program, a research firm finds.[…]

Those motorists also had higher levels of buyers’ remorse, says the firm, CNW Research.

A mid-January analysis of those who purchased a new vehicle under the cash-for-clunkers program found the most dramatic differences among those in the lowest credit category:

Among subprime credit borrowers, those who used the clunkers program had a 4.8% repo rate, more than double the 2.2% who bought similar vehicles but didn’t use the government incentives.

Cash for clunkers was Congress’ and the Obama administration’s effort to spur the economy last year by offering up to $4,500 in incentives for buying a new fuel-efficient car. CNW adds that it isn’t as clear whether those in better credit categories also have higher repo or late payment records.

As for buyers’ remorse, almost 1 in 5 clunkers program participants
who took part in a survey this month said they regret buying a new vehicle under the program. Among those who didn’t use the program, the regret rate was slightly more than 1 in 20.

As a result, perhaps it’s no surprise that more subprime customers who took part in the program tend to be late with payments than those who did not. Many had expected the economy to rebound by now.

"Faced with a new monthly payment of $250 to $350 per month, many of the (clunkers program) users admit they didn’t think past the new car smell," CNW says in its January newsletter. "Most, however, anticipated the economy improving substantially between last July and today and felt that improvement would give them the financial boost necessary to at least offset some of the additional monthly payment." (USA Today)

Not only did the tax payers have to pay for the Cash for Clunkers program, but now the tax payers will be on the hook once again to back stop the additional losses that will be coming as a result of the failed program.

Oh, this should go over real well. The Senate to investigate fraud.. LOL

WASHINGTON — A Senate panel has subpoenaed financial institutions, including Goldman Sachs Group Inc. and Deutsche Bank AG, seeking evidence of fraud in last year’s mortgage-market meltdown, according to people familiar with the situation.

The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year’s financial crisis.

According to people familiar with the matter, the Senate Permanent Subcommittee on Investigations also has issued a subpoena to Washington Mutual Inc., a Seattle thrift that was seized by regulators in last year’s financial crisis and is now largely owned by J.P. Morgan Chase & Co. It appears likely that several other financial institutions also have received subpoenas. Subcommittee investigators declined to comment. A Goldman Sachs spokesman declined to comment on the subpoena. Deutsche Bank declined a request for comment.

The subpoenas are the latest in a series of moves by Congress to trace the roots of the financial crisis. Goldman has been a favorite target for criticism in Washington.[...] (Source: WSJ)

You mean that after all this time Congress still has no clue how this happened, they really are clueless in Washington.

Reuters reports…

Standard & Poor’s on Monday boosted its expectations for losses on risky loans backing U.S. mortgage securities to as much as 40 percent, suggesting a darkened outlook for the troubled housing market.

The more dire assessment will likely “significantly impact” bonds originally carrying AAA ratings, S&P said in a report.

Increased assumptions for total losses on subprime and Alt-A residential mortgage-backed securities come amid declines in market value of the debt and a surge in the inventory of bank-owned properties, S&P said.

It is another blow to investors who are already suffering from downgrades to their portfolios over the past two years as the housing market fell to the weakest levels since the 1930s. Many bonds are trading for cents on the dollar as investors value them based only on remaining interest payments that may be received.

S&P boosted loss projections for subprime loans made at the peak of the market in 2006 and 2007 to 32 percent and 40 percent from 25 percent and 31 percent, respectively. For 2005 loans, loss projections rose to 14 percent from 10.5 percent.

For Alt-A loans, which were made to borrowers that provided reduced proof of their ability to repay, loss projections for 2006 and 2007 mortgages rose to 22.5 percent and 27 percent from 17.3 percent and 21 percent, respectively. S&P expects Alt-A loans from 2005 to post losses of 10 percent, up from its previous estimate of 7.75 percent.

Loss severities, which include the costs to foreclose and liquidate a home and declines in property value, are expected to rise to 70 percent for 2006 and 2007 subprime bonds and 60 percent for Alt-A bonds issued in those years, S&P added. Some severities have already exceeded 100 percent, it said.

“We have observed increases in loss severities and we expect them to continue to rise until we reach the trough of the market value decline, which we believe will be in the first half of 2010,” S&P said in the report.

Rating companies, including S&P, have frequently revised expectations for losses on subprime, Alt-A and prime loans to reflect the deteriorating environment since 2006.

S&P said it now forecasts defaults on subprime loans issued in 2005, 2006 and 2007 at 11 percent, 30 percent and 49 percent, respectively.