Tuesday, December 05, 2006

WSJ article on mortgage defaults

If you don't already have an online subscription to the WSJ, I recommend it. Pricey? Yes. A little behind some of the bubble blog news? True. Worth it? Definately.


On Friday, KeyCorp said it reached a deal to sell its subprime Champion Mortgage business. Analysts at Friedman, Billings, Ramsey & Co. put the price for the company's subprime mortgage operation at $130 million, "far below" the $200 million to $250 million they expected. A spokeswoman for KeyCorp declined to comment, except to say that KeyCorp feels it "definitely generated a fair price" for both the unit and its loan portfolio, which was sold separately. She added that KeyCorp was leaving the subprime market because "it no longer fits with our long-term strategic priorities."

Soaring delinquencies are making some lenders more cautious, which is likely to put further pressure on the weak housing market. Yesterday, the National Association of Realtors said that its index for pending home sales for October fell a seasonally adjusted rate of 1.7% from September and was down 13.2% from a year earlier.

Delinquency rates have been rising steadily since the middle of 2005. But the trend has accelerated sharply in the past two to three months, according to an analysis by UBS. The figures don't include loans that lenders were forced to repurchase because the borrower went into default in the first few months; such repurchases also have increased sharply this year.

In October, borrowers were 60 days or more behind in payments on 3.9% of the subprime home loans packaged into mortgage securities this year, UBS says. That's nearly twice the delinquency rate on new subprime loans recorded a year earlier.

Who is going to be buying all these sub prime lenders?

Who is going to buy the lower tranches of MBS?

But some recent deals are already coming under review. Standard & Poor's Corp. put one deal backed by loans issued by Fremont General Corp.'s mortgage unit on credit watch for possible downgrade last month and says it could take similar action on deals from several other issuers within the next few months. Fremont declined to comment.

This is the most important part of the article. I wish the WSJ had gone into how a bond downgrade results in an increased risk premium resulting in a credit tightening.

We have all discussed what happens when credit tightens.

Wait to buy a home until its difficult to get a loan. Have your down payment secured. That's when you get the best deal.



AnalysisGuy said...

I released three more Q3:2006 reports today - San Francisco, Seattle and Los Angeles. Seattle is particularly interesting because it's never had a period of nominal price decine. We can influence this market back to reasonable prices.


wannabuy said...


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