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Non-Tech : Bill Wexler's Trading Cabana
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To: RockyBalboa who wrote (1813)3/18/2007 11:09:50 AM
From: RockyBalboa  Read Replies (3) of 6370
 
I compared NDE a little bit with CFC.

What can be said about CFC.

Trends are:

Overall loan production is down with conventional mortgages down most and HELOCs down least. Longer term, it is interesting to note that conforming loans play a much smaller role now (as a result of GSE pulling back, by means of not adjusting conformity criteria). They halved from 60% in volume downto 31%.

The share of ARMs is a bit down in production 2006 compared to 2005 but still 45% vs 52%. So, ARMs are a significant source of risk in there. Note that ARMs only got popular in 2004 when much of the rate cycle was behind us! The 2003 share was a mesly 21%.

(remember that NDE was growing wildly in 2006. One wonders why? What kind of additional risks did NDE incur in order to grow that much when others cut back, even in nonprime and HELOC).

Comment: declining ARMs will inevitably lead to a normalisation of the yield curve. The flat to inverse yield curve was no advantage to the ARMs borrowers.

The nearly $33B Option Arms are separately broken out with nearly 90% of them acreeting principal (so it is clear that option ARM borrowers generally pay as little as possible!). The delinquency on those loans jumped from 0.10 to 0.63 in 2006. CLTV stands now at 78% leaving some room for error.

Other Numbers:

CFCs loans are only half the size of NDEs. Its inferred FICO stands at 720 (vs 701 for NDE). That explains that NDE has so much less conforming loans but this is of rather academic use so far (correlation between CLTVs, Loan amounts and default ratios?).
CFCs returns on assets are 1.05% vs 1.35% for NDE. Most of the ROA difference is directly attributable to the lower interest margin. The financing is comparable, both are essentially thrifts financing a good part of their activities through client deposits (thereby avoiding the dependency on reverse repo's).

Also as a result the dependency on interest rate income is higher at NDE vs. CFC as NDE has a smaller share of servicing fee income (<50% as in 70% for CFC). This is partly attributable to the high ARMs share in CFCs loan portfolio where adjustments happen in 2007.
It's leverage is similar with around 7% equity.
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