Archive for the 'Mortgage securities' Category
October 13th, 2009, 1:00 am by Mathew Padilla
It is still hard but not impossible to get a jumbo home loan — that’s a mortgage too big to be sold to Fannie Mae or Freddie Mac.
In his latest column, Paul Muolo of National Mortgage News writes about one mortgage banker who has a system for jumbos:
Meet Lucy Malone, president of Bridge Capital, San Diego. Until June of this year her firm funded jumbos. “It went from being a market that was over-served to one that is extremely under-served,” she says.
Ms. Malone, a mortgage banker, got tired of struggling to find loan programs for her wealthy home buying clients. She had one client who had $2 million in the bank and wanted to buy a $500,000 home on the island of Coronado, right outside of San Diego proper. “He was an S-Corporation,” she said. “I couldn’t get him a loan.”
For the past few months she’s been acting as an agent for a commercial bank. Instead of making loans backed by the value of wealthy abodes, her firm makes a short-term line of credit that is collateralized by a home buyer’s stock portfolio — as in equities. “These are all cash deals that are going into escrow,” she explained. “This is asset-based lending. We look to the stock portfolio.” In Ms. Malone’s estimation, she had to change strategies to survive. She’s been in the business for 28 years.
The bank she works with will fund up to 115% of the stock portfolio’s value.
The loans are three to five-year interest only notes. For now, it’s a solution to a problem that could be solved by jumbo securitizations returning but she has no hopes of that happening any time soon.
She said she’s talked to the nation’s largest lenders — Bank of America, Wells Fargo & Co., and Chase. “It will be four years before securitizations come back,” she said. “We looked into it. That’s what we found.”
Muolo goes on to describe big banks making and holding jumbos. They are restrictive, asking for as much as 50% down.
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Posted in: Jumbos • Mortgage securities | 10 Comments »
October 8th, 2009, 1:00 am by Mathew Padilla
The Mortgage Bankers Association yesterday released a statement to a Senate subcommittee saying the system of turning loans into securities needs to be fixed and returned to its former glory. Securitization provides liquidity and disperses risk, according to the association. (Download the MBA Statement)
When it comes to home loans, government-controlled Fannie Mae and Freddie Mac are the only ones still churning out mortgage securities in significant numbers.
Paul Krugman, a Nobel-winner in economics, wonders why anyone wants securitization — he calls it shadow banking — to return.
“The banks don’t need to sell securitized debt to make loans — they could start lending out of all those excess reserves they currently hold,” Krugman writes on his blog.
What do you think?
Do we want securitization back?
Posted in: Bailout Buzz • Bank woes • Mortgage securities | 11 Comments »
September 17th, 2009, 7:02 am by Mathew Padilla
In my last post, I noted the possibility mortgage rates could rise in January, if the Federal Reserve stops buying mortgage-backed securities as planned. But 30-year fixed mortgage rates are indirectly linked to 10-year Treasury notes, and Goldman Sachs sees their yield at “risk” of falling toward 3% amid low inflation. Here’s more from Bloomberg:
The U.S., the U.K. and Australia will be the “main beneficiaries” of a rally in longer-maturity government bonds, Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs, wrote in a research report. Australian 10-year securities are the “cheapest” among markets tracked by Goldman and should trade at yields below 5 percent, he wrote.
“We see risk skewed in the direction of 10-year yields breaking towards their 200-day moving average of 3 percent, from their current 3.4 percent level,” Garzarelli and Michael Vaknin wrote in a separate note to clients. “The global bond premium remains elevated, although off the June highs, and there is plenty of excess liquidity in banks balance sheets which needs to be put to work.”
Inflation risks are subdued by high unemployment and under utilization of industrial capacity. But with a weak dollar, big government deficits, and the Fed spreading money around the inflation threat should not be ruled out. So 3% Treasury yield is probably less likely than Goldman suggests.
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Posted in: Mortgage rates • Mortgage securities | 9 Comments »
September 16th, 2009, 1:00 am by Mathew Padilla
The latest from National Mortgage News:
If the Federal Reserve Board suddenly stops purchasing agency mortgage-backed securities on Jan. 1, mortgage rates could jump by 30 basis points to 50 bps, according to Fannie Mae chief economist Doug Duncan. Conventional mortgages with principal balance up to $417,000 would likely rise by 30 bp and rates on higher balance loans of $650,000 to $729,750 could go up by 50 bps, he told MortgageWire. The Fed’s $1.25 trillion MBS purchase program is slated to expire Dec. 31. But Mr. Duncan expects the Fed will extend and slowly wind down its purchases of Fannie, Freddie Mac and Ginnie Mae MBS. “Thus, incremental winding down of the Fed’s program may not be too disruptive of rates and spreads,” Mr. Duncan said in his August economic forecast. The Fed is expected to decide how it will wind down the MBS purchase program at the Sept. 22-23 Federal Open Market Committee meeting.
More from this blog…
Posted in: Bailout Buzz • Fed • Mortgage rates • Mortgage securities | 11 Comments »
August 15th, 2009, 2:00 am by Mathew Padilla
This is an interesting story from Bloomberg:
The rally among home-loan bonds without government backing is being fueled by errors made by “most market participants” in translating current prices to potential returns, Amherst Securities Group LP analysts said.
Investors are overestimating potential yields in part because they are failing to consider how many loans are becoming delinquent for the first time and partly because they are arriving at incorrect conclusions on how long it will take to liquidate seized homes, the New York-based analysts led by Laurie Goodman wrote in a report yesterday. Those issues can influence both the size of foreclosure losses and how quickly bonds get paid down.
“Do your homework, and sell securities which are being evaluated incorrectly by the marketplace,” the analysts wrote.
Non-agency home-loan bonds have soared from record lows or near-nadirs in March amid speculation that Treasury Secretary Timothy Geithner’s Public-Private Investment Program, or PPIP, will add as much as $40 billion of demand to the market, and that the longest U.S. recession and worst housing slump since the Great Depression are easing.
For example, the most-senior classes of 2006 and 2007 securities backed by prime-jumbo mortgages have rallied to more than 80 cents on the dollar, from as low as 55 cents, according to Amherst. So-called super-senior bonds backed by “option” adjustable-rate mortgages have jumped to about 48 cents, from the “low 30s,” the analysts wrote.
I should jump in here and say that pricing on such deals is hard to obtain. Speaking of whole loans, as opposed to securities mentioned by Amherst, Wells Fargo reportedly sold $600 million in distressed subprime mortgages for 35 cents on the dollar. Wells declined to comment on the deal and the Irvine investor never returned my phone call.
Granted, those were subprime loans not option ARMs or prime jumbos. Paying 80 cents on the dollar for securities backed by prime jumbos might make sense, but everything depends on where the loans were made, when they were made and what the delinquency rates are like. And, frankly, I’d look carefully at which company packaged the securities.
Bloomberg continues:
Investors also have been doing too little analysis of the differences, such as the level of home equity, among borrowers with currently non-delinquent mortgages backing non-agency bonds, which lack guarantees from government-supported Fannie Mae and Freddie Mac or U.S. agency Ginnie Mae, they said.
After correcting two of the three common mistakes by investors, the potential yield on a Countrywide Financial Corp.- issued option ARM bond now trading at 48 cents on the dollar would fall to 6.49 percent, from 12.67 percent, assuming the London interbank offered rate remains unchanged, Amherst said. Adjusting for all three reduces the yield on a Wells Fargo & Co. jumbo-mortgage note bought at 85 cents to 7.15 percent from 11.52 percent, the analysts wrote.
That is “much lower than most market participants believe they are receiving on the security,” they said. “Moreover, the yield must be evaluated in conjunction with the level of uncertainty about our assumptions” around whether borrowers will continue to refinance at the “fast” pace of recent months and how many borrowers with “negative equity” will default.
Third Point Profits
Scott Simon, mortgage-bond chief at Newport Beach, California-based Pacific Investment Management Co., the world’s largest fixed-income manager, told Bloomberg Television on Aug. 4 that “from a long-term point of view, a lot of this paper still will yield a lot after losses.”
A buyer last quarter of at least some kinds of home-loan bonds was Third Point LLC, the hedge fund run by Daniel Loeb, which entered the market amid lower prices after profiting from bets against subprime-mortgage bonds in 2007, according to a July 31 investor letter from the New York-based firm.
Third Point bought $160 million in mortgage bonds and made more than $20 million in profits from April through July, Loeb wrote. He estimated that under “severe economic distress” where all of the underlying loans default and home prices drop another 20 percent, the debt the fund held as of June 30 would return 10 percent based on the prices it paid. The debt would return 17 percent to 20 percent under “our base case economic assumptions,” he said.
The implication of the story is that companies that hold such securities may have overvalued them on their books, thus limiting recognized losses. Let’s face it, accounting rules were changed to give companies more leeway in evaluating assets they hold and the TARP money gave them a cushion against which to downgrade assets by the amount deemed necessary by the companies.
The bad assets are still out there, a potential cloud over the economic recovery.
More from this blog…
Posted in: Bad debt • Bailout Buzz • Bank woes • Mortgage rates • Mortgage securities | 10 Comments »
May 2nd, 2009, 3:00 am by Mathew Padilla
Housing sales are up, but the market will fully recover only when investors start buying mortgage securities again, some experts say. So what will get them buying?
Investors are holding back because home prices are falling and no one knows how far loan delinquencies will climb, experts say. Government, by lowering interest rates and offering buyers tax incentives, is doing everything it can to support home prices.
As for uncertainty about delinquency, data crunchers TransUnion LLC and First American CoreLogic say they got it covered. TransUnion is one of the big three credit reporting agencies and CoreLogic tracks loan data as part of title insurance giant Santa Ana-based First American Corp.
Investors have relied on rating agencies — Standard & Poor’s, Moody’s and Fitch – to assess default and other risks. But the agencies gave some rosy ratings they later had to take back on securities backed by loans that are non-conforming, meaning not backed by Fannie Mae or Freddie Mac.
 Joe Mellman Joe Mellman, a vice president with TransUnion, and Dan Berman, a senior vice president with CoreLogic, said in an interview that they are jointly offering investors data and analysis that helps assess default risk. Dubbed TransUnion Consumer Risk Indicators, the service is also offered to buyers of whole loans (not securities).
Q. So is this new service necessary because the rating agencies can’t be trusted?
Mellman: “The fact that rating agencies recently haven’t made the right calls certainly enhances the need. But this information goes beyond that. Independent of how rating agencies perform there is still a need for this. I think the key point is that it adds additional insight above and beyond what the rating agencies have provided.”
Q. How does it work?
Mellman: “Historically, in the non-agency mortgage securities market there hasn’t been as much concern about default. There weren’t defaults when housing prices were going up. Obviously, that’s changed over the last couple of years with the housing collapse. Now there is a driving need for consumer default and prepayment behavior information.”
“At TransUnion, one of the core competencies is tracking consumer behavior. At First American CoreLogic it is the detailed loan-level information on securitized loans. We figured out a way to marry that to TransUnion’s consumer details.
 Dan Berman Berman: “Among our core competencies is the loan level data on virtually all no-agency mortgage-backed securities, roughly 96% of the non-agency market. We get files through securitization and update those monthly.”
Q. How does this differ from what is currently used in the industry?
Mellman: “Up until recently, looking at specific consumers or borrowers of loans in each securitization has not been possible. The information hasn’t been used and for good reason: there wasn’t a need as long as default risk wasn’t high.”
Berman: “We now have the ability to join TransUnion data to that of loan level data to get the borrower’s perspective. Stakeholders in securities can get updated views.”
Q. Are you targeting investors in mortgage-backed securities?
Mellman: “That’s a fair statement. Investment banks, hedge funds, pension funds — anyone with a financial stake in non-agency mortgage securities (is our target).”
Q. Is this service both for when a security is issued and later, say if an investor wants to be distressed assets from a bank?
Berman: “It precedes securitization and is post securitization. It can tell you if people are paying or not paying, if home prices are going up or down, if people have taken out additional loans on the property. Up until this solution, the client wasn’t able to know post origination, post securitization what the overall risk encumbrances are. A loan can be 80% LTV at origination, but that can change based on additional loans the borrower may take out. Also, the property value is going to change.”
Mellman: “A consumer may look safe at origination, but that can change over time. This (service) offers a broad sweep of information, generally covering most of the information traditionally available on a credit report. We have narrowed it down to the set most helpful to financial investors. For example, consumer credit utilization – how much credit a consumer has available — is a good predictor of risk. Also, the timeliness of payments, including on credit cards, is a good indicator. The consumer credit data encompasses most debt; it’s not just focused on a specific property. The investor can see if I have eight mortgages outstanding.”
Q. How will data be presented to investors?
Mellman: “It’s a large data set. We can be very flexible with different security types, but usually we do an electronic data feed. Data is detailed but anonymous. We don’t identify borrowers.”
Q. Is everything geared toward default risk?
Mellman: “That is a big focus, but it can help model and anticipate prepayment risk.”
Q, What does it cost?
Mellman: “We are privately held. We don’t provide that information to the market.”
Q. What info do you have on adjustable-rate mortgages?
Mellman: “TransUnion has access to First American CoreLogic’s adjustable-rate information, such as when the interest rate is going to reset and how much it will reset to.”
Berman: “That’s particularly useful for a portfolio of junior liens. Junior lien holders can see whether or not there will be payment shock on reset, including the risk before and after the resetting event.”
Q. Investors have relied on rating agencies. Why do you think they will take this extra step and use your service?
Mellman: “Two reasons: one we alluded to earlier. The rating agencies go it wrong on a lot of these securitizations. There is going to be a period of time, when some trust needs to be built back into that. But even more importantly, independent of that, sophisticated investor are always looking for an information edge. We have incremental insight into how a security is going to perform that directly translates into making more money for them. The rest of the market doesn’t have that clear a picture, and they can translate that into dollars.”
Q. What companies/investors have signed up for it, if any?
(Mellman and Berman both declined to name clients, citing privacy agreements.)
Q. Are you hoping some investors in the Obama administration’s public-private investment partnerships (PPIP) use your service?
Mellman: “Absolutely. Anyone who has an interest in establishing a more accurate price and knowing the true risk of a security (is a potential customer).”
Berman: “We are hopeful the folks participating will leverage this information, creating a little more – or a lot more — transparency in the market. Hopefully, that will lead to greater liquidity in the market.”
Posted in: Meltdown • Mortgage securities • Q&A • industry | 2 Comments »
April 21st, 2009, 6:00 pm by Mathew Padilla
The Federal Reserve has no particular exit strategy in mind for the $1.25 trillion in net mortgage-backed securities it plans to buy this year, said former Fed governor Randall Kroszner, according to National Mortgage News. (See my previous post on the Fed’s ballooning balance sheet HERE.)
Here’s more from NMN:
Speaking at the Mortgage Bankers Association’s National Secondary Market Conference, Mr. Kroszner said the central bank will “do whatever it takes” to keep rates in check until the MBS market returns to some semblance of normalcy. For the most part, the central bank is now the secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, having purchased more than $300 billion worth of the bonds in the first quarter. But the MBA is worried that when the Fed reaches its goal, its exit from the market will cause mortgage rates to shoot upward. Mr. Kroszner, who spent three years at the central bank before returning to the University of Chicago in January, said, “The real challenge is to thread the needle. Whether the Fed will purchase more or less will depend on the facts and circumstances at the time.” If the central bank is satisfied by 2010 that the market is coming back, it will reduce it purchases, said Mr. Kroszner, who was a member of the President’s Council of Economic Advisors from 2001 to 2003, and “mortgage rates should rise at a normal pace.”
In other news…
Posted in: Fed • Mortgage securities | 3 Comments »
April 11th, 2009, 3:00 am by Mathew Padilla
Recently I asked Linda Lowell, formerly a managing director at Greenwich Capital and current head of consulting firm OffStreet Research LLC in Ossining, New York, her thoughts on the Federal Reserve’s plan to buy up to $750 billion more in securities backed by mortgages with guarantees from Fannie Mae or Freddie Mac. Here’s her response:
Whether by design or by accident, the Fed now is trying to plug the hole in MBS demand left by the short-sighted and partisan-politics-driven takeover of Fannie and Freddie. The portfolios represented unacceptable systemic risk to the intellectual foes of FN/FRE and, to bank supporters, unfair funding advantage — and it follows, too sharp an edge before subprime & Alt-A in the loan market. But to all other sectors of mortgage demand they were market ballast, operating efficiently to keep a floor on pricing.
Critics of Fannie and Freddie will argue all kinds of things to the contrary, but Fannie and Freddie were very sophisticated asset/liability managers and value buyers, who bought MBS and loans for portfolio when they were cheap — in flight to quality panics and strong interest rate rallies. This established that floor on pricing which helped buffer performance for other investors and kept the mortgage rate from widening too sharply from other interest rates in a rally.
As you know, this mechanism collapsed starting last spring. They started having difficulty funding as cheaply, capital constraints on portfolios began to bother MBS investors — in brief, the foreign, hedge fund and other buyers who were next buyers on the margin after FN/FRE started to balk. Many have gone as FN/FRE clearly can not use their funding ability and portfolios as they had in the past. It finally dawned on the authors of every unintended consequence you never wanted to imagine that someone had to replace the demand for mortgages. Enter the Fed.
They are doing their best, through very skilled managers to realize value and buy up enough new production to keep mortgage rates close to Treasuries. I haven’t looked lately at how they are doing, but they have achieved new historic lows in mortgage rates to best buyers. But bear in mind, they can’t remove all the spread between mortgage rates and Treasury rates. Investors must be compensated for prepayment risk and all its siblings and cousins. Also, if Treasury rates rise with Treasury supply, then mortgage rates will rise.
If they have a number (ideal mortgage rate) in mind, I don’t know it. I don’t recall anyone saying out loud what the goal was since (former Treasury Secretary) Paulson left. It’s not the number that matters so much either, it’s the psychological effect of historic low and the pure facts of affordability. The objective is to get more disposable income into refinancing households — or at least, foreclosure protection — and to attract new buyers into the housing market. There are lots of frictions and hurdles on the way to that objective that the Fed cannot control.
Posted in: Bailout Buzz • Meltdown • Mortgage rates • Mortgage securities • Q&A | 3 Comments »
April 9th, 2009, 3:00 am by Mathew Padilla
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, writes in a recent column:
If $3 trillion in mortgage debt was refinanced (just under 30 percent of outstanding debt) with an average savings of 1.0 percentage point, then this would save homeowners $30 billion a year in mortgage payments. That is certainly helpful to the economy, but it is just 0.2 percent of GDP. Furthermore, a substantial portion of this benefit will be lost when people sell their home (often in the next few years), since they will have to absorb refinancing costs that average 0.6 to 0.8 percent of the loan.
The Federal Reserve, in cutting the federal funds rate and buying mortgage-backed securities, clearly wants people to refinance and lower their debt payments, hopefully spending that savings. I think Baker is right that the boost to consumer spending will be limited.
The Fed’s other goal is to help the housing market find a bottom sooner. It wants to stop the wealth destruction, or at least, it wants people to feel wealthier and more secure.
Home buying has increased from very low levels. But eventually rates must rise to combat inflation and that will put downward pressure on home prices.
However, some economists see deflation as the bigger worry right now, and inflation could be years away.
In other news…
Posted in: Bailout Buzz • Mortgage rates • Mortgage securities | 2 Comments »
April 8th, 2009, 5:30 pm by Mathew Padilla
The Federal Reserve today released minutes from its last meeting, sharing these thoughts on its efforts to buy securities backed by mortgages (bold type added):
The Federal Reserve’s programs to buy direct debt obligations of the federal housing agencies and agency-guaranteed MBS were on track to reach their initial targets of $100 billion and $500 billion, respectively, by the end of June. Participants agreed that the asset purchase programs were helping to reduce mortgage interest rates and improve market functioning, thereby providing support to economic activity. Some participants stated a preference for communicating the Committee’s intention regarding such purchases in terms of the growth rate of Federal Reserve holdings rather than a dollar target for total purchases. However, others noted that the pace of MBS issuance was likely to be especially brisk over the next few months, in part because of the Administration’s new Making Home Affordable program, and observed that it could be advantageous to be able to front-load purchases to accommodate the pattern of mortgage refinancing. Participants also discussed the relative merits of increasing the Federal Reserve’s purchases of agency MBS versus initiating purchases of longer-term Treasury securities. Some participants remarked that experience suggested that purchases of Treasury securities would have effects across a variety of long-term debt markets and should ease financial conditions generally while minimizing the Federal Reserve’s influence on the allocation of credit. However, purchases of agency securities could have a more direct effect on mortgage rates, thus providing greater benefits to the housing sector, and on private borrowing rates more generally. Also, some participants were concerned that Federal Reserve purchases of longer-term Treasury securities might be seen as an indication that the Federal Reserve was responding to a fiscal objective rather than its statutory mandate, thus reducing the Federal Reserve’s credibility regarding long-run price stability. Most participants, however, saw this risk as low so long as the Federal Reserve was clear about the importance of its long-term price stability objective and demonstrated a commitment to take the necessary steps in the future to achieve its objectives.
…
In the discussion of monetary policy for the intermeeting period, Committee members agreed that substantial additional purchases of longer-term assets eligible for open market operations would be appropriate. Such purchases would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability. One member preferred to focus additional purchases on longer-term Treasury securities, whereas another member preferred to focus on agency MBS. However, both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain. Members agreed that the monetary base was likely to grow significantly as a consequence of additional asset purchases; one, in particular, stressed that sustained increases in the monetary base were important to ensure that policy was consistently expansionary. Members expressed a range of views as to the preferred size of the increase in purchases. Several members felt that the significant deterioration in the economic outlook merited a very substantial increase in purchases of longer-term assets. In contrast, the potential for a large increase over time in the size of the balance sheet from the TALF program was seen as supporting a more modest, though still substantial, increase in asset purchases. Ultimately, members agreed to undertake additional purchases of agency MBS of up to $750 billion and of agency debt of up to $100 billion, and they also agreed to purchase up to $300 billion of longer-term Treasury securities. The Committee believed that purchases of these amounts would help to promote a return to economic growth and price stability. The period for conducting the agency debt and MBS purchases was extended from the next three months to the next nine months; members agreed to allow the Desk flexibility within this horizon to respond to market conditions. Treasury purchases were to be conducted over the next six months. Members also noted the recent launch of the TALF, and they agreed to include in the Committee’s statement an indication that the range of assets accepted as eligible collateral for the TALF was likely to be expanded. Committee members decided to keep the target range for the federal funds rate at 0 to 1/4 percent and to communicate to the public the Committee’s view that the federal funds rate was likely to remain exceptionally low for an extended period.
In other news…
Posted in: Bailout Buzz • Fed • Mortgage rates • Mortgage securities | 3 Comments »
April 7th, 2009, 7:50 am by Mathew Padilla
The New York Times took a closer look at how the Federal Deposit Insurance Corp. is going to fund investor purchases of bad loans and related assets — a key part of Treasury Secretary Timothy Geithner’s bank rescue plan:
The F.D.I.C. is insuring the program, called the Public-Private Investment Program, by using a special provision in its charter that allows it to take extraordinary steps when an “emergency determination by secretary of the Treasury” is made to mitigate “systemic risk.”
Fair enough, but the Times also reports that the provision in question limits the FDIC’s ability to borrow, guarantee or take on obligations of more than $30 billion.
As the Times points out, the FDIC will insure up to 85% of the debt, provided by Treasury, that private investors will use — together with a little of their own money — to buy assets that have plummeted in value since the housing downturn began. Treasury says the program could eventually buy $1 trillion in assets.
One could see all this as a way for the Obama administration to avoid asking Congress for more bailout funds, reports the Times’ Dealbook.
So how does the FDIC insure up to $1 trillion in assets? The Times says by focusing on “contingent liabilities” — or what it might actually lose. How much does it expect to lose? Nothing!
“We project no losses,” Sheila Bair, the chairwoman, told the Times. “Our accountants have signed off on no net losses.”
The “no-losses” policy — kinda reminds me of how Wall Street used to view subprime — is justified because the FDIC plans to carefully vet every loan made and will receive fees and collateral in exchange, writes the Times’ Andrew Ross Sorkin, who is clearly skeptical. I am wondering: Isn’t the collateral the toxic assets???’
But if there are nominal losses, then the FDIC can assess the financial industry a fee to get its money back, Sorkin is told. He says that would put more pressure on weakened banks. Hey, those that got TARP money could use it to pay the fee.
Sorkin rightly points out that if the FDIC’s logic is flawed and it is crushed by the losses, then taxpayers will have to bailout the FDIC.
The latest banking/lending stories …
Posted in: Bailout Buzz • FDIC • Meltdown • Mortgage securities | 2 Comments »
March 28th, 2009, 3:00 am by John Gittelsohn
 Jon Daurio, chairman of Orange-based Kondaur Capital Corp., has up to $1 billion to invest in “scratch-and-dent” mortgages — home loans that are under water or delinquent or foreclosed. Despite all that capital, Daurio says he has no plans to be one of the investors in Treasury Secretary Tim Geithner’s scheme to create a government-private market for the troubled mortgages and mortgage-backed securities that have become toxic assets on bank ledgers. The plan is “woefully inadequate,” because it distorts the free market, said Daurio, who worked for subprime lenders Long Beach Mortgage Corp. and Encore Capital Corp. before founding Kondaur in 2007. Some excerpts from an interview:
Q. Why don’t you like the Geithner plan?
A. They’re offering something like 11-to-1 leverage of government-to-private money as a way of getting private capital into the market. But it’s interesting that everyone agrees that being over-leveraged got us into this problem and now they’re saying here’s leverage to get us out. They’re talking out of both sides of their mouth.
Q. Isn’t the idea to get someone to invest in these toxic assets that no one wants so banks can unload them?
A. The problem isn’t that the market is frozen for mortgage-backed securities. The problem is the banks don’t want to sell them for what they’re worth. These banks are like the walking dead. And instead of trying to keep them alive by propping up the market, the government should let them die.
Q. What do you think about the government’s ideas of prices?
A. The government says they want to pay something like 72 cents on the dollar. I think that’s far too high. We’re being told that the real value is in the 30s.
Q. Is it possible you don’t like this plan because it could hurt your business by driving up the cost of mortgages?
A. It absolutely could hurt and I’m not a disinterested party. But I think the magnitude of the market is so great — and they’re only talking about $1 trillion — that I’ll still have business. I’d be shocked if it takes care of enough loans to really move the marketplace.
Q. Have you heard of anyone interested in participating in the Geithner plan?
A. I haven’t seen anybody stepping up, because none of us have any faith in the government. It’s definitely not attractive enough for Kondaur. I’m also afraid that the government will change the terms of the deal, like they’re doing with bankruptcies and allowing judges to cram down the cost of mortgages. Look at what they’re doing with AIG, talking about a 90% tax on the bonuses. What’s to prevent the government from changing the deals on this?
Q. What about PIMCO, the bond trading company in Newport Beach? They’ve been saying it’s a good idea.
A. It may work for them. They’d be buying mortgage-backed securities, which are basically bonds. We are in a different market. We buy whole loans, not securitized mortgages. That takes a lot more labor, because we do due diligence on every mortgage. Bonds are a totally different business.
Previous stories on Kondaur …
Ex-subprime exec works flip side of the market
What type of mortgage jobs are opening?
O.C. mortgage company hiring 200
Other bailout stories …
Posted in: Bad debt • Bailout Buzz • Meltdown • Mortgage securities • Obama • Pimco • Uncategorized • Daurio • Geithner • Kondaur | 11 Comments »
March 18th, 2009, 3:46 pm by Mathew Padilla
Rates in Orange County dipped today on 30-year fixed-rate mortgages that can be sold to Fannie Mae or Freddie Mac, said Jeff Lazerson, head of online brokerage Mortgage Grader in Laguna Niguel.
He said buyers with good credit can get 4.625 percent with a one-point fee, down from about 4.750 percent yesterday. And a borrower can get 4.250 percent on a 15-year loan.
Those rates are for loans up to the old conforming limit of $417,000.
Earlier today the Federal Reserve said it plans to spend up to $750 billion more buying securities backed by loans that have been touched by Fannie or Freddie. And it will buy up to $300 billion in U.S. Treasury bonds.
Fixed mortgage rates are indirectly associated with yields on mid-term Treasuries. For example, this afternoon the yield on a 10-year Treasury dropped to about 2.5 percent from 3 percent yesterday.
The latest banking/lending stories …
Posted in: Mortgage rates • Mortgage securities | 8 Comments »
March 5th, 2009, 2:39 pm by Mathew Padilla
Bloomberg reports:
The Federal Reserve bought a net $30.1 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds in the latest week under its program aimed at lowering home-loan rates, using tools other than purchases for the first time.
The Fed entered contracts to buy $59 billion of the securities and sell $28.9 billion, according to a posting today on the New York Fed’s Web site. The purchases were the largest so far by either gross or net amount. The biggest portion from Feb. 26 through March 4 was $18.9 billion of 30-year debt with 4.5 percent coupons, the Fed said.
The U.S. central bank said that its sales, the first reported since the Fed two months ago began a program under which it may buy $500 billion of agency mortgage securities, “were associated with dollar rolls.” So-called dollar rolls, similar to repurchase agreements, create the equivalent of bond-secured financing for mortgage investors. The lower the cost of that borrowing for investors such as hedge funds, the lower the yields at which they may find mortgage-backed securities attractive.
Bloomberg explains dollar rolls as an investor seeking to borrow money entering into contracts to sell mortgage securities one month and then buy similar bonds the next month. A lender enters the opposite trades. Investors may also enter such trades for other reasons.
The Fed continues to nudge, or try to nudge, investors to buy mortgage securities, and thus lower mortgage rates.
In other news…
Posted in: Fed • Meltdown • Mortgage securities • MBS | 1 Comment »
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