O Que Aconteceu?
The pace of foreclosures continues a pace. With the subprime situation starting to ripen and mature, perhaps this suggests that the Alt A and Pay Option wall of the hurricane is coming ashore. This is real delayed time fuse explosive material too. By this I suggest that the recoveries will be even worse than for subprime, because of the degree of the collapse in housing prices by the time this recasts and resets hit, plus the additions to the mortgage balance from negative amortization. In other words these are “o maximo” in impact.
Nationwide, more than 272,000 homes received at least one foreclosure-related notice in July, up 55 percent from about 175,000 in the same month last year and up 8 percent from June, RealtyTrac Inc. said.
I have long held Downey Savings and Loan ($9.9 billion in deposits plus over $1.5 billion in FHLB borrowings) to be the canary in the mineshaft on these dicey loans in California. If you will read about half way down this Feb. 15, 2007 post, I set the stage. Also note that DSL uses 110% recast provisions. That has to be an issue now.
I now see that DSL had 15.5% (or $1.96 billion) of their mostly Pay Option loan portfolio as non-performing, and against $859 million in equity and $734 million in loss allowance (a Texas Ratio of 123%). And the rapidity of this is rather stunning too, as NPA climbed from 7.77% to 15.5% in just six months. This also raises another question. At what level is the FDIC going to move on shutting down these banks? And in a sign that all these enablers are still waiting for the corpses to wash ashore rotting and stinking to high heaven before pronouncing them officially dead, we see Moodys and S&P getting around on July 25th, to downgrading Downey to junk status. Didn’t the head down bobbing fifty meters offshore offer some clue here? This is akin to making predictions on Saturday’s football games after reading the Sunday sports page.
Elsewhere here is what CountryFried’s PayOption mortgage portfolio has done in the last six months. The “refreshed” FICO scores and LTV ratio is an interesting Sunday morning sports page concept. Also notice that what was once a 717 FICO score suddenly becomes 680 after property values are trashed. Whodathunk?
Elsewhere the default rate on junk debt is also accelerating. The pace of decay seems to be unabated right now, making calls of credit cycle bottoms odd to say the least.
Reuters- The U.S. default rate rose to 2.37 percent in July from 1.92 percent in June and is likely to rise to 4.9 percent over the next 12 months, S&P said in a release.
Interesting chart and article on the value of three year vehicles, not much it appears. Totally non-economical expensive transportation, in addition to prospects for more poor recoveries for lenders.
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