fair amount of off the grid emails. They run the gamut. On a recent
piece re: the Agency’s stock price I got, “You could not find your behind with your own two hands”.
The note was sent to me in Cyrillic script. Google translate gave me
the gist of the message. Apparently they are trading the Agencies from
the Long side in Kazakhstan.
I
also get comments from people who are more knowledgeable than I am on a
topic that I write about. I got the following analysis of a Ginnie Mae
security from someone who has given me his or her permission to post
it. This person works on Wall Street and does not want their name
revealed. This analysis jives with recent reports that FHA is suffering
losses and may need a bailout(WSJ 9/4). Enjoy. Hat Tip Jswede.
I’m
continually astounded by a lot in this market, but perhaps nothing has
been as jaw-dropping as the performance of the GNMA MJM (multi-jumbo
mortgage) wrapped loans made starting about 1 year ago. These were the
‘mod’ loans made especially for ‘problem zip codes’ (read: high-priced,
low equity and free-falling CA, AZ and FL) to support those markets. To
make these high priced homes eligible for FHA, the max loan amount was
stretched to over $700k. As there were ‘problems’ in these properties
to begin with, the LTV averaged around 95%....
here’s a look at
a random GNMA MJM 6%cpn (G2 4216) collateral issued in Aug 2008 –
around 1300 loans to start, original principal $1b, median 95% LTV,
WAOLS ~$466k… 94 loans paid off (how many short sales do you think?)…
another ~225 30+ days delinquent… reminder, this is ONE YEAR LATER and
July numbers….
Here’s
a GNMA MJM 7%cpn (G2 4218) from Aug 2008 – only 26 loans in this one,
$12mil at issue, 95% median LTV, WAOLS ~$498k…. 15 of those loans are
delinquent. 7 loans are 90+ days – several probably never made a
payment.
According
to your Tuesday, July 21, 2009 entry, “Fed Mortgage Report – What’s
Ginnie Mae Up To?”, GNMA gtd loan amount outstanding has expanded by
close to 50% from 2Q 08 to 2Q 09….. if these MJM’s are any sign, in my
estimation, we (tax-payers) will be taking losses with 20-40%
severities on those new loans…
The more traditional GNMA
securities made up of ‘conforming loan amounts’ are likely not much
better: mostly bought with 3.5% down to 1st time buyers – oh, and they
also got to monetize their tax-credit, so really have no skin in the
game at all….
Here’s a random conforming loan size GNMA pool
(G2 4170) from June 2008 – 12,224 loans, $199k WAOLS, 97% median LTV,
$2.46bil original pool size:
These
conforming loans don’t look too much better, huh? These losses will be
just huge…. I mean, these numbers are just 1yr later… this will be
perhaps a more massive transfer of losses to the upper income tax-payer
than anything else we’ve seen so far….
So if an investment bank or a thrift wants to gamble they get their payout no matter what but if an employee or investor bought GM bonds they had to take it in the rear? Ah America...
Correct me if I'm wrong, but it is safe to assume that none of these losses are recognized. What has to transpire in order for ginnie to actually recognize these losses on their books?
these are, in fact, 'recognized' to a degree - at least the problem loans. GNMA is not holding these loans on their books - they instead guarantee timely payment of principal and interest to the holders.
GNMA is making the interest payment of those delinquent to the bond holders each month.... and when/if they foreclose, they must make the bondholder whole at par and suffer those losses immediately.
Since it's actual money going out GNMAs door and being paid to private bondholders, I sure would hope they recognize those losses immediately... one would hope...
So, how it turns out is that the problem loans incur losses as soon as they have to deal with them, but those current are held at par I'd believe... even though they should probably have a healthy haircut.
if these were not gov't backed, they'd be trading in the 10-20 cents on the dollar range, and you're right, they are not taking that kind of loss recognition, that's 100% for sure...
what's really scary is this:
these are not the 'problem loans'.... this is government's solution to the problem loans.
Wow.....just wow.
I would like to thank the individual who sent this information to Bruce. It takes courage to leak information, but that is the only way that some of these atrocities will be revealed.
Thanks to you as well Bruce for yet another excellent piece.
+1.
It takes courage and conviction to bring these most excellent articles to life. Thank you!
Some folks when confronted with reality cling ever more tightly to their failure forgetting that there is an alternative.
This is what happens when those with fragile ego's who cannot accept the concept of failure have control of the financial markets and political apparatus. Self destruction is unfolding right before our very eyes.
Scary as hell.
I'm sure the explanation would be something like this:
"Well, these loans were made before we really understood what was happening. After all, Lehman failed in September and that's what caused the collapse. What you're seeing is the last of the bad mortgages and everything will be fine now."
Kudlow had John Carney on yesterday ... and included some conversation about Ginnie Mae's:
http://www.businessinsider.com/john-carney-kudlow-and-carney-the-federal-housing-authority-is-likely-to-go-broke-2009-9
I for one was floored... when I recently re-financed a $500,000 mortgage and they didn't even ask for proof that I had a job or income... and they were more that willing to re-fi for 100% using a 2nd mortgage if I wanted (which I didn't)... it is the same game that they have been playing for the last 7 years... I just happen to be one of the lucky ones for whom the 'scam' worked in my favor and I am not sitting out by the curb.
And now the next question: how much of this debt is decaying and stinking up the Federal Reserve Bank and Landfill at this very moment?
As of September 2, mortgage backed securities are held in the amount of $625 billionCurrent+. Footnote 4 to this number states: "Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages."
i.e., no "mark to market" here folks. Move along, nothing to see.
i smell another government backed bond purchase program. Oh wait GNMA are already FF&C.
Makes me wonder if these MJM's are now part of agency debt held at the fed.
I think I...wait, checking...yes, I just browned my pants.
How does one spell FLAGULATION? Or is it deflation? Does it matter?
A couple of things. As another wall streeter, his numbers do look right, i.e., not made up. And everyone should remember, FHA loans were the original subprime before there was subprime. That is, people who were getting the FHA wrap did not qualify under traditional Fannie/Freddie underwriting standards. Changes to the program such as the increased loan size in certain locals will only make the losses worse.
fuck! Turbo Timmy needs to take this hit.
NOT ME