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Bair 6:1
The FDIC has been making noises for a couple of months about a dry-run of the PPPIP for Legacy Loans, where Uncle Sam will provide half the equity and and up to 6 turns of seller-financed leverage for Public Private Investment Funds to buy whole loans off failed institutions. Well, the first run is here. Announced today, it's comprised of $1.357bn in real estate loans from the failed Franklin Bank, SSB. Franklin had $5.1bn in assets when it was closed down. About $3.7bn of those assets went to Prosperity Bancshares Inc. and the rest are now on auction. Peeking under the hood:
- 1.357bn
- 30% delinquent (30+)
- First-liens, third-party serviced
- 47m Weighted Average Loan Age
- 255,000 Average Loan Size
- Orig FICO 707, Current FICO 670
- 5.88% Weighted Average Coupon
- 35% California
Now the meaty bits:
- 18% Full Doc
- 45% Stated Doc
- 10% No Income / Do Doc
- 48% Interest-Only
- 40% <5yr resets
- 4% Mortgage Insured
- 0% REO
Hmmm ... 0% REO. Unless it was selling off every foreclosed property at the courthouse steps, this probably was a way for the bank to avoid recognizing losses that it had not provisioned for... In any case it doesn't matter how many HAMP loan mods you do, if this represents the typical small-bank Alt-A portfolio, there's some hefty shadow inventory in the wings.
Marla's earlier piece on Paulson & Co vs Bair here.
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Is this Madoff's latest investment piece. Sounds like its right up his ally.
I think there may be some confusion between the whole loan program and the securities program. The securities sale program is limited to the PPIP asset managers but the whole loan sales, both cash and structured, are open to all qualified investors. The tombstone above is for a whole loan structured sale. The previous structured sales included the same 20% to 40% promote but did not include the financing option. The bidders and winners of the previous structured sales at the FDIC website.
I wouldn't take that shit as a gift.
Now I understand why they are 'carefully vetting' fund managers and giving them 6x leverage.
PPIP Asset Manager: "Hmmm... given the crappy nature of this portfolio... plus... the limted number of bidders bidding... plus the implicit government guarantee... plus my 12 times leverage... well... let me finish cal..cu..la...ting."
"Ah., yes. We will bid 80 cents on the dollar for these fine assets".
they were probably selling the REO to a hedge fund for 5 cents on the dollar.
as for the rest of it, the expected loss on that shit has to be at least 45%, depending on the CLTV and vintage (though i assume it was 2005-7 vintage, and mostly 80-10s).
but of course one of the many distressed debt funds who have no fucking idea how to run loss estimates on mortgages will overpay, with the taxpayers swallowing the loss when their 20% loss estimate comes in 2X+ what they thought (they will run it through LP with a 10-20% house price decline and call it good, like LP has any fucking clue how layered mortgage risk behaves in a distressed housing market)
"Shadow inventory"...Hah! It's a freakin' eclipse!
Nice job Nick...excellent find and analysis. The "meaty bits" are downright scary (or should I say shitty). Thank you.