Loss Severity

Subprime Auto Delinquencies Jump 17% In July, Net Losses Soar 28%

According to the latest Fitch auto subprime report, things in the auto subprime space are progressively deteriorating, with subprime 60+ day delinquencies rising 13% month-over-month (MOM) in July to 4.59%, and were 17% higher versus a year earlier.  Subprime ABS annualized net losses (ANL) hit 7.39% in July rising 17% MOM, and were 28% higher year-over-year (YOY).

The Treasury's Worst-Case Scenario: Over $3.3 Trillion In Student Loans In A Decade

"... If the unemployment rate were to edge up after reaching a trough in two years and the gap between U-6 and unemployment remains as wide as it is today – in excess of historical norms – the size of the program would be expected to reach roughly $3.3 trillion in 2024, $1.7 trillion more than in the base case." - TBAC

Gundlach's First Webcast Of 2014: "Let the Race Begin! 2014 Markets: Year of the Horse"

"Bond King" Bill Gross may not have had a good year following over $40 billion in redemptions from his $250 billion Total Return Fund, but another aspirational Bond King, DoubleLine's Jeff Gundlach, had an even worse year on an relative basis, when his Total Return Bond Fund saw $6 billion in redemptions ending the year at $30.9 billion in AUM following seven consecutive months of withdrawals. So in his attempt to start the new year on better footing, here is his first webcast (as usual open to the public), titled "Let the Race Begin! 2014 Markets: Year of the Horse", in which as usual Jeff will discuss the economy, the markets and his outlook for the best investment strategiest of 2014. Let's hope that for bond fund manager, that 2014 is not just another "year of the donkey", as was the case in the past year which everyone managing duration would rather forget.

Bank Of America Has Lost Money Trading On Only Three Days In 2012

From the just released Bank of America 10-Q: "During the three months ended June 30, 2012, positive trading-related revenue was recorded for 95 percent, or 60 of the 63 trading days of which 75 percent (47 days) were daily trading gains of over $25 million and the largest loss was $11 million. These results can be compared to the three months ended March 31, 2012, where positive trading-related revenue was recorded for 100 percent (62 days) of the trading days of which 95 percent (59 days) were daily trading gains of over $25 million. There were no daily trading losses recorded during the three months ended March 31, 2012." This vaguely reminds us of the JPM's trading performance. Just before they got busted for hiding a $350 billion hedge fund in the firm's "risk hedging" aka CIO/Treasury division that is. Also, if anyone else has problems believing that BofA's trading desk, with or without Merrill, both of which are better known as the C-grade (and that is being generous) of Wall Street traders, could generate profits on 122 of 125 trading days, please lift your hand.

The 'Big Reset' Is Coming: Here Is What To Do

A week ago, Zero Hedge first presented the now viral presentation by Raoul Pal titled "The End Game." We dubbed the presentation scary because it was: in very frank terms it laid out the reality of the current absolutely unsustainable situation while pulling no punches. Yet some may have misread the underlying narrative: Pal did not predict armageddon. Far from it: he forecast the end of the current broken economic, monetary, and fiat system... which following its collapse will be replaced with something different, something stable. Which, incidentally, is why the presentation was called a big "reset", not the big "end." But what does that mean, and how does one protect from such an event? Luckily, we have another presentation to share with readers, this time from Eidesis Capital, given at the Grant's April 11 conference, which picks up where Pal left off. Because if the Big Reset told us what is coming, Eidesis tells us how to get from there to the other side...

TARPed, RETARPed, And Then DETARPed

To sum up today's mass bank lawsuit news: first the taxpayers were asked to save Freddie and Fannie, then they were asked to save the banks, now when it is politically expedient to do so, the first entity which is still being saved ($200B of taxpayer funded capital injections later) is suing the second saved entity. In the interim, on a day when job growth in this country was essentially ZERO, we are going to lose another 30,000 private sector jobs. Finally, it is worth mentioning that these lawsuits are suggesting that Fannie Mae and Freddie Mac were semi-clueless when it came to the mortgage securitization process. Something that may be a tad difficult to prove given that they were major players in the mortgage markets. If readers are confused, they are not alone.

PIMCO On The Robosigning Scandal And Its Consequences

PIMCO, which was one of the firms spearheading the putback push against BofA, has put together a useful and rather objective analysis though Executive Vice President, Global Structured Finance Specialist, Rod Dubitsky, titled "Foreclosure Flaws Trigger New Round of Uncertainty." While not surprisingly the baseline case presented by PIMCO is a moderate one, as the asset manager claims the most likely impact is "moderate" it does acknowledge that there is a possibility for substantial complications (although Fannie's recent bail out of BofA pretty much takes cares of that). The two main adverse consequences are "corrupted title" - a topic beaten to death previously, and, more importantly, "Tax issues relating to RMBS issuance entities" on which PIMCO says "Some have argued that assigning the note for the mortgage loan so long after closing would run afoul of REMIC rules, which could subject RMBS deals to adverse tax consequences." Of course, as an escalation of these developments would bring the entire $8 trillion RMBS structured finance industry to a halt, we are fairly confident that as more and more settlements are instituted, that the whole fraudclosure issue will be very soon completely forgotten.

Reggie Middleton's picture

BoomBsutBlog and the independent analysts vs Wall Street: I(we) say insolvent, or damn close, they say buy. Hmmm!!! Judging by affiliation and track record, who do you think is right?

It is peculiar that the firms that don't underwrite securities or sell information services are the most bearish on the banks, isn't it? Even the constant "just shut up and buy 'em" banks missed the ball on Google!

Bank Of America In Complete Denial Over Foreclosure/Putback-Gate

In an ironic twist of events, last night Bank of America's Chris Flanagan, head of MBS strategy penned an article titled: "Foreclosure Issues Pose Risks, Should Be Resolved With Time" in which the Bank of American proudly reports the following piece of supreme denial: "While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets...Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand." Well isn't it ironic, as Alanis would say... To think all this occurred when Bank of America was still just above it 15 month lows. After today's festivities, not so much. As for the tenets of, well, all those things that are supposed to stand, we are sure that is the case: after all would Moynihan wouldn't risk perjury if he was concerned that a multi-decade culture of perjury, fraud and lies could ever be overturned. The alternative of course would be jail time. And recall what happened to his securities-fraud committing predecessor. Regardless, here is the full MBS defense as presented by the bank with the most to lose when things finally get out of hand. Oddly enough, even this most KoolAided  of defenses admits that "the end result will likely be a further extension of foreclosure timelines." Which makes one wonder: just what gives the bank the confidence that it will be able to lift the moratorium within a week? And just what will happen to the firm if it is unable to sweep all these tens of billions in future losses under the rug.

Econophile's picture

The recovery of the economy depends on several important factors, but the recovery of the real estate market is near the top of the list, especially commercial real estate (CRE) because most of America's banks are loaded down with CRE debt. Here is a current assessment of the state of the CRE market.

Record Commercial Real Estate Deterioration In June As CMBS Investors Pray For 50% Recoveries

In continuing with the trivial approach of actually caring bout fundamentals instead of merely generous (and endless) Fed liquidity, we peruse the most recent RealPoint June 2010 CMBS Delinquency report. The result: total delinquent unpaid balance for CMBS increased by $3.1 billion to $60.5 billion, 111% higher than the $28.6 billion from a year ago, after deteriorations in 30, 90+ Day, Foreclosure and REO inventory. This represents a record 7.7% of total outstanding CMBS exposure. Even worse, total Special Servicing exposure by unpaid balance has taken another major leg for the worse, jumping to $88.6 billion, or 11.3%, up 0.7% from the month before. And even as cumulative losses show no sign of abating, average loss severity on CMBS continues being sky high: June average losses came to 49.1%, a slight decline from the 53.6% in May, but well higher from the 39.6% a year earlier. Amusingly, several properties reported loss % of 100%, and in some cases the loss came as high as 132.4% (presumably this accounts for unpaid accrued interest, and is not indicative of creditors actually owning another 32.4% at liquidation to the debtor in addition to the total loss, which would be quite hilarious to watch all those preaching the V-shaped recovery explain away. Of course containerboard prices are higher so all must be well in the world). Putting all this together leads RealPoint to reevaluate their year end forecast substantially lower: "With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint projects the delinquent unpaid CMBS balance to continue along its current trend and potentially grow to between $80 and $90 billion by year-end 2010. Based on an updated trend analysis, we now project the delinquency percentage to potentially grow to 11% to 12% under more heavily stressed scenarios through the year-end 2010." In other words, the debt backed by CRE is getting increasingly more worthless, even as REIT equity valuation go for fresh all time highs, valuations are substantiated by nothing than antigravity and futile prayers that cap rates will hit 6% before they first hit 10%.