Bruce, I have said this before, and will say it again now:
Mortgage lending to a group where over 10% of borrowers will face foreclosure is IMHO immoral.
Thus, our government is immoral by being such a lender.
To your point about high LTV lending, I would also put the MI companies in the immoral camp.
To their credit, if you take away the "credit enhanced" (i.e. high LTV) loans, Fannie and Freddie's guarantee book is actually performing exceptionally during this crisis. 3% default rates isn't great, but pretty good in the face of 10% unemployment.
The subprime market had shrunk to virtually zero percent in the first quarter of 2008 after triggering the housing collapse following defaults by borrowers.
Subprime borrowers, usually lacking good credit histories, find it nearly impossible to obtain mortgage loans from mainstream lenders.
Since the January-March period last year, "increased FHA (Federal Housing Administration) lending... has revived this segment of the market," Krainer said.
"After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20 percent, the same share as when subprime securitization peaked in 2006," he said."
Fri, 11/13/2009 - 14:52 | Anonymous
Mr. Dovovan's chart is labeled +90 day delinquencies. Your numbers add 20, 60 and 90 day delinquencies. More dramataic to be sure but not apples to apples.
Extending Mr. Donovan's chart out to Q3 would likely show the same 11% +90 that your numbers show. Not terrific perhaps but not 27% either.
Yes, but. What happens to 30 day late paper?. It becomes 60. what happens to 60? It becomes 90.
When it gets to 90 they do a HAMP deal (or just take a loss). The HAMP is a refi with 125% LTV. The evidence so far shows that 50% of this goes back into 30 day within nine months.
So you tell me, what will the default rate on this portfolio be (adding back 50% of HAMP)?
I think the ultimate default rate on these loans will be right in there with the final results of the alt A and sub prime.
My view is that a 96.5% LTV is a sub prime loan. It is a loan that has a very high default rate associated with it.
Fri, 11/13/2009 - 18:02 | Anonymous
Update the graphic in 60 days. The graphed Prime Loan isn't that much better. Are those numbers as bad? Might be more telling..
You are correct that the roll rates from 30-60-90 are high. Cure rates are awful.
But, on terminology - HAMP is the Fannie/Freddie mod program, HARP is the Fannie/Freddie refi program. The FHA has their own version of HAMP (I think they just call it HAMP FHA, i would have to look it up).
The 125LTV refi is HARP, not HAMP. I know, hard to keep track of these stupid programs (plus, some just seem to fade away, FHA Secure, anyone???).
In terms of your definition of subprime, high LTV would certainly be one of the criteria, though traditionally FICO is the yardstick, see my post below on the recent Fed study of sub-660 borrowers (which is the definition bank regulators use for subprime), and how that share of the market is back to 2006 levels thanks to the FHA.
So we have a combo of high LTV and low FICO, definitely subprime by any definition.
No question the performance of 2008 vintage FHA will be close to 2006 vintage subprime - I expect we will see 40% foreclosure frequencies. 2009 FHA remains to be seen, but it should be awful as well.
After viewing the above picture, I am now absolutely convinced that Sheila Bair is related to Bert Lahr, the Cowardly Lion in the Wizard of Oz.
A moment of irrelevant revelation....sorry.
Bruce, I have said this before, and will say it again now:
Mortgage lending to a group where over 10% of borrowers will face foreclosure is IMHO immoral.
Thus, our government is immoral by being such a lender.
To your point about high LTV lending, I would also put the MI companies in the immoral camp.
To their credit, if you take away the "credit enhanced" (i.e. high LTV) loans, Fannie and Freddie's guarantee book is actually performing exceptionally during this crisis. 3% default rates isn't great, but pretty good in the face of 10% unemployment.
The high tech era includes individual, dynamically updated dictionaries. Write your own definition and call it good.
according to the SF Fed, subprime loans (defined as FICO<660) are back to pre-crisis levels, and you know where they are coming from.
maybe these guys should coordinate on their message.
http://www.google.com/hostednews/afp/article/ALeqM5iYHIKusEsznUi30DtAwrV...
"
The subprime market had shrunk to virtually zero percent in the first quarter of 2008 after triggering the housing collapse following defaults by borrowers.
Subprime borrowers, usually lacking good credit histories, find it nearly impossible to obtain mortgage loans from mainstream lenders.
Since the January-March period last year, "increased FHA (Federal Housing Administration) lending... has revived this segment of the market," Krainer said.
"After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20 percent, the same share as when subprime securitization peaked in 2006," he said."
Mr. Dovovan's chart is labeled +90 day delinquencies. Your numbers add 20, 60 and 90 day delinquencies. More dramataic to be sure but not apples to apples.
Extending Mr. Donovan's chart out to Q3 would likely show the same 11% +90 that your numbers show. Not terrific perhaps but not 27% either.
Yes, but. What happens to 30 day late paper?. It becomes 60. what happens to 60? It becomes 90.
When it gets to 90 they do a HAMP deal (or just take a loss). The HAMP is a refi with 125% LTV. The evidence so far shows that 50% of this goes back into 30 day within nine months.
So you tell me, what will the default rate on this portfolio be (adding back 50% of HAMP)?
I think the ultimate default rate on these loans will be right in there with the final results of the alt A and sub prime.
My view is that a 96.5% LTV is a sub prime loan. It is a loan that has a very high default rate associated with it.
Update the graphic in 60 days. The graphed Prime Loan isn't that much better. Are those numbers as bad? Might be more telling..
You are correct that the roll rates from 30-60-90 are high. Cure rates are awful.
But, on terminology - HAMP is the Fannie/Freddie mod program, HARP is the Fannie/Freddie refi program. The FHA has their own version of HAMP (I think they just call it HAMP FHA, i would have to look it up).
The 125LTV refi is HARP, not HAMP. I know, hard to keep track of these stupid programs (plus, some just seem to fade away, FHA Secure, anyone???).
In terms of your definition of subprime, high LTV would certainly be one of the criteria, though traditionally FICO is the yardstick, see my post below on the recent Fed study of sub-660 borrowers (which is the definition bank regulators use for subprime), and how that share of the market is back to 2006 levels thanks to the FHA.
So we have a combo of high LTV and low FICO, definitely subprime by any definition.
No question the performance of 2008 vintage FHA will be close to 2006 vintage subprime - I expect we will see 40% foreclosure frequencies. 2009 FHA remains to be seen, but it should be awful as well.
As I say below, simply immoral.