Fed Splurges on Freddie Gold

EB's picture

In light of TD’s earlier post regarding Freddie’s loan defaults and some preliminary work we’ve done delving into the primo triple-A rated Agency MBS offerings the Fed has shoved down its pie hole into the bottomless pit that is its balance sheet (the depth of which is bounded only by the fact that DXY cannot go negative—yet), we present the #1 MBS holding by the Fed: Freddie’s "FHLMC PC GOLD 5% 01/39" (3128M7DJ2) to the tune of $8,880,051.70 (reported at par as of Oct 21 09).  Don’t let the name fool you, the only Gold is the un-mined kind that might just be unearthed when entire zip codes are bulldozed in the outer asteroid belts of LA after commuting 2.5 hours a day in a Hummer becomes economically unviable, and copper wiring becomes the new reserve currency.

Recently, the Fed began releasing detailed statistics on its SOMA MBS holdings (note: they are not archived--you must download the Excel file each week).  Between Oct 7 and Oct 14, an additional $7,249,986.40 of the aforementioned Freddie Gold offering settled on the Fed’s books. 

If you would like to know just how many California newlywed first time homebuyers with no mortgage insurance, with no verifiable assets or income were originated loans by unknown parties throughout the boom years of 2007 and 2008, or just how many Malibu yuppies are extracting the last bit of cash from their home ATM on this brief respite from the mean reversion in home prices due to end in the early teens, read here.  Some excerpts, that would fail to shock only a Moody’s analyst:

 

                LOAN PURPOSE

___________________________________________

Type        |% of UPB|# of Loans|% of Loans|

____________|________|__________|__________|

Purchase    | 36.49% | 308314   | 40.30%   |

____________|________|__________|__________|

Cash-Out    | 31.30% | 136738   | 17.87%   |

Refinance   |        |          |          |

____________|________|__________|__________|

No Cash-Out | 32.20% | 118693   | 15.51%   |

Refinance   |        |          |          |

____________|________|__________|__________|

Refinance   |  0.01% | 201374   | 26.32%   |

NotSpecified|        |          |          |

____________|________|__________|__________|

Unknown     |  0.00% |      0   |  0.00%   |

____________|________|__________|__________|

 

 

     FIRST-TIME HOMEBUYER DISTRIBUTION

___________________________________________

Type        |% of UPB|# of Loans|% of Loans|

____________|________|__________|__________|

First-Time  | 10.37% |  41676   |  5.45%   |

Homebuyer   |        |          |          |

____________|________|__________|__________|

Unknown     |  0.02% | 356550   | 46.60%   |

____________|________|__________|__________|

 

 

      MORTGAGE INSURANCE DISTRIBUTION

___________________________________________

Type        |% of UPB|# of Loans|% of Loans|

____________|________|__________|__________|

Loans with  | 11.51% |  46561   |  6.09%   |

MI          |        |          |          |

____________|________|__________|__________|

Unknown     |  0.02% | 356542   | 46.60%   |

____________|________|__________|__________|

 

 

     ASSETS DOCUMENTATION DISTRIBUTION

___________________________________________

Type        |% of UPB|# of Loans|% of Loans|

____________|________|__________|__________|

Assets      | 92.87% | 369838   | 48.34%   |

Verified/   |        |          |          |

Waived      |        |          |          |

____________|________|__________|__________|

Assets Not  |  7.10% |  38739   |  5.06%   |

Verified/   |        |          |          |

Not Waived  |        |          |          |

____________|________|__________|__________|

Unknown     |  0.02% | 356542   | 46.60%   |

____________|________|__________|__________|

 

 

     INCOME DOCUMENTATION DISTRIBUTION

___________________________________________

Type        |% of UPB|# of Loans|% of Loans|

____________|________|__________|__________|

Income      | 91.99% | 366351   | 47.88%   |

Verified/   |        |          |          |

Waived      |        |          |          |

____________|________|__________|__________|

Income      |  7.99% |  42226   |  5.52%   |

Not Verified|        |          |          |

/Not Waived |        |          |          |

____________|________|__________|__________|

Unknown     |  0.02% | 356542   | 46.60%   |

____________|________|__________|__________|

 

 

           THIRD PARTY ORIGINATION (TPO) DISTRIBUTION

_______________________________________________________________

Type         |Aggregate UPB     |% of UPB|# of Loans|% of Loans|

_____________|__________________|________|__________|__________|

Retail       |  6,125,295,493.94| 44.55% |  176438  | 23.06%   |

_____________|__________________|________|__________|__________|

Broker       |    512,302,203.51|  3.73% |    8492  |  1.11%   |

_____________|__________________|________|__________|__________|

Correspondent|  1,085,751,887.26|  7.90% |   15050  |  1.97%   |

_____________|__________________|________|__________|__________|

TPO          |  6,021,348,571.16| 43.80% |  208597  | 27.26%   |

Not Specified|                  |        |          |          |

_____________|__________________|________|__________|__________|

Unknown      |      3,083,331.51|  0.02% |  356542  | 46.60%   |

_____________|__________________|________|__________|__________|

 

 

                LOAN ORIGINATION DISTRIBUTION

______________________________________________________________

Year        |Aggregate UPB     |% of UPB|# of Loans|% of Loans|

____________|__________________|________|__________|__________|

        1999|$             0.00|  0.00% |      2   |  0.00%   |

        2000|         74,187.43|  0.00% |      6   |  0.00%   |

        2001|              1.50|  0.00% |      6   |  0.00%   |

        2002|            377.30|  0.00% |    606   |  0.08%   |

        2003|        280,352.26|  0.00% |  36212   |  4.73%   |

        2004|        279,154.04|  0.00% | 127402   | 16.65%   |

        2005|      4,890,405.88|  0.04% | 233908   | 30.57%   |

        2006|     34,383,888.63|  0.25% |  40653   |  5.31%   |

        2007|  2,119,867,521.87| 15.42% |  77960   | 10.19%   |

        2008| 11,587,223,432.15| 84.28% | 248345   | 32.46%   |

        2009|        782,166.33|  0.01% |     19   |  0.00%   |

____________|__________________|________|__________|__________|

 

 

                        GEOGRAPHIC DISTRIBUTION

________________________________________________________________________

State                 |Aggregate UPB     |% of UPB|# of Loans|% of Loans|

______________________|__________________|________|__________|__________|

California            |$ 2,618,423,368.55| 19.05% | 100111   | 13.08%   |

Washington            |    674,886,610.78|  4.91% |  30691   |  4.01%   |

Illinois              |    660,488,952.81|  4.80% |  35744   |  4.67%   |

Texas                 |    653,971,797.00|  4.76% |  37706   |  4.93%   |

New York              |    602,509,003.33|  4.38% |  29540   |  3.86%   |

...

 

                     SERVICER DISTRIBUTION

________________________________________________________________

Servicer                        |% of UPB|# of Loans|% of Loans|

________________________________|________|__________|__________|

BANKOFAMERICA,NA      NY 14068  | 24.79% | 155077   | 20.27%   |

WELLSFARGOBANK,NA     IA 50328  | 18.42% | 205425   | 26.85%   |

JPMORGANCHASEBANK,NA  NJ 08330  | 14.12% |  66836   |  8.74%   |

CITIMORTGAGE,INC      MO 63368  |  7.70% |  82296   | 10.76%   |

GMACBANK              PA 19034  |  5.68% |  11187   |  1.46%   |

SERVICERS < 1% UPB              |  5.45% | 104821   | 13.70%   |

USBANKNA              MN 55425  |  5.22% |  24856   |  3.25%   |

JPMORGANCHASEBANK,NA  NJ 08330  |  4.71% |  36270   |  4.74%   |

GMACMORTGAGE,LLC      PA 19034  |  2.79% |  14387   |  1.88%   |

BRANCHBANKING&TRUSTC  SC 29601  |  2.57% |  14741   |  1.93%   |

TAYLOR,BEAN&WHITAKER  FL 34470  |  1.87% |  12456   |  1.63%   |

PROVIDENTFUNDINGASSO  CA 94010  |  1.62% |  16222   |  2.12%   |

FIRSTHORIZONHOMELOAN  TX 75063  |  1.50% |   4749   |  0.62%   |

FIFTHTHIRDBANK        OH 45227  |  1.25% |   7848   |  1.03%   |

WACHOVIABANK,NA       NC 27607  |  1.18% |   5422   |  0.71%   |

FLAGSTARBANK,FSB      MI 48098  |  1.12% |   2526   |  0.33%   |

________________________________|________|__________|__________|

 

The good news is these loans are being serviced by the finest minds in banking, who will, of course, suffer no hit to their balance sheet as a result of servicing fees drying up on defaulted loans.  Legal question of the day: can you continue to collect a service fee when no payments are made if the word foreclosure is relegated to metaphor status?

When this eventually unravels, the circle jerk of mutual guarantees will burn out even the SPARC computers that run NYSE/FedWire in an infinite loop of transfers among Treasury, FDIC, Freddie and the Fed itself.  Then, not even the electrical grid will be safe.

 

Disclosure:  No copper or Agency MBS positions at time of writing.

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bonddude's picture

I know a guy who leases a large piece of pavement near Merced to a repo man who specializes in RVs. He at about 1,000 now.

Weird

Rainman's picture

That's a good point bonddude. No tent cities will be required out this way. Lease an RV for a hundred bucks down and a couple hundred a month. Live on the end of an emptied out cul-de-sac in Palm Springs.

California dreamin'.  

bonddude's picture

Funny every post-apocalyptic sci-fi flick has tons

of RVs. Wonder where they'll fill up?

Rainman's picture

The Cali RE market is truly fukked for a long time. But on a brighter note, a lot of the Hummers and Beemers buzzing around this state were paid for with HELOCS or cash outs. House goes bye-bye after 12 months of not making a payment on either the first or second. But you've still got that new paid off ride to style in.

So now the new scam out here involves loans on unencumbered vehicles at Tony Soprano rates. 50% max LTWBV. GPS installed with shut down for the delinquents. And , happily for the lender, delinquencies run high.

A pawn shop for vehicles with collateral you never came close to paying off and you get to drive til the GPS shuts you down !! The lender then moves your baby through auction for a tidy profit.

Happy, Happy, Happy Times !!

 

 

Green Sharts's picture

As ugly as it is, the government is ultimately going to stand behind these bonds, so whether they buy them now or cover the shortfalls later really doesn't make a lot of difference.

Anonymous's picture

Wasn't SOMA the drug in Brave New World?

Anonymous's picture

Take a look at the Loan Origination Distribution table. For the 1999 and 2001-2005 rows, it looks like most of the loans have average balances of under $100 ($0 for the 1999 loans). I'm kind of amazed that they put so many small balance loans in the pool. It looks so messed up that it makes me wonder if any of the data is right. I've heard of people scraping the bottom of the barrel for any loans to securitize, but I've never seen anything like that.

just.a.guy's picture

Wow, and we're holding this stuff at par?  Looks more like a triple bogey.

Bruce Krasting's picture

Great stuff. 85% of this is 2008. These were loans and refi's that were made with a specific economic intent. To try to bail out a collapsing system. It worked. For now. But this is the price we have to pay for this bailout.

What is a guess on the mark to market of this swill?  Probably around 70%. Thank goodness they do not mark anything.

My guess is that 25% of these loans will go into default in the next 24 months. Of those, a loss of 50% of principal will be realized.

Call that 15%. That is a very conservative assumption. But if you applied that number to Fannie and Freddie and FHLB you would get $900 billion. About triple the current loss estimates.

Do more on this topic.

 

 

 

 

 

 

bonddude's picture

I sell a specific animal, namely land backed small issue Cal munis among others. Obviously, I need to be aware of projected RE values. With all of the pent up REO inventory particularly for the "Inland Empire", home prices especially for conforming loan priced homes, is like a TSUNAMI ! Hard to say how long they can delay it.

I don't think $8,000 credits and the like will work much longer. Many homes, occupied or delinquent and some empty have total annual tax burdens as high as $10,000 per year--

BEFORE ANY MORTGAGE !

It is still scary.

KeyserSöze's picture

"the only Gold is the un-mined kind that might just be unearthed when entire zip codes are bulldozed in the outer asteroid belts of LA after commuting 2.5 hours a day in a Hummer becomes economically unviable, and copper wiring becomes the new reserve currency"

Hilarious....well done EB.

MsCreant's picture

Does anyone have an opinion on real gold just this sec? I have been offered 17 1/10 fractionals @ $125 each. Never done fractionals before. Spot is 1054.60. Gotta do the deal soon, obviously!

Sun Tsu's picture

-counterfeit 1/10 fractionals are no bargain at any price. Know the Mint.

MsCreant's picture

How would I educate myself?

MsCreant's picture

Thanks to all for your answers. All your opinions were helpful. Everyone. I had this question on another thread as well. I lost out on one Krug and 16 Eagles because I was too slow. I learned a lot from this experience and your input and feel like I will be ready to pull the trigger when it is right next time.

That was cool having all that support so fast. Thanks again.

Rusty_Shackleford's picture

Very reasonable.  123.51 on APMEX right now  + shipping.  If you like em' grab em'.

 

However.  With the same amount of money you can almost buy 2 x 1oz eagles.  That's an extra .3 oz for free.

 

 

 

Anonymous's picture

$125 is a fair price (I've seen Eagles for $135). While many will shy away from fractionals altogether, or at least anything under 1/4 because you can't recover the premiums when you resell, in a SHTF-type scenario they'll be a good thing to have. If you aren't comfortable with the amount of gold you currently hold and you would otherwise buy gold in the next month, then get them. With all the reports of gold-plated tungsten bars being stamped good delivery and Germany getting the 90% bars melted down under FDR (who knew we still had gold?), it's looking like there will be a real physical pinch in the next month or two and $1250/ozt will seem like a relative bargain as compared to $1600.

deadhead's picture

Golf clap.

Very well done and thank you very much.

EB's picture

Thanks for your continued support DH.

Apocalypse Now's picture

Literary Gold - "the only Gold is the un-mined kind that might just be unearthed when entire zip codes are bulldozed in the outer asteroid belts of LA after commuting 2.5 hours a day in a Hummer becomes economically unviable, and copper wiring becomes the new reserve currency."

It's all just an illusion, loans are not made from deposits - they originate with a few strokes of a bankers keyboard.  The difficulty becomes both capital allocation and loss allocation, as some individuals have exchanged hours worked for the benefit of taking on mortgage liability while others put less of their hours worked down on their properties and therefore invest less of their time.  The lesson here is to use other people's money, put as little down as possible.  Being responsible is of no benefit when the irresponsible flourish and leave you with the tab for losses (bailout & moral hazard) - if they were matching deposits with loan creation without the ability to offload the risk of default (systematic problem) to pension funds & other greater fools, capital allocation would be smarter.  While the money system is an illusion, your time is not - you only have so many heart beats so make them count.


EB's picture

Exactly.  The ultimate moral hazzard is the Fed put, which has become all-encompassing and is not going away anytime soon.  Bailouts are politically embedded in our country, despite the populist rage to the seeming contrary. 

EB's picture

...is the new molybdenite