I attempted to evaluate this whole issue an Actionable post entitled Exposed in Broad Daylight.
wallstreetexaminer.com
If you don't have access, the data I used in this analysis came from the SIGTARP report, see table 3.1 and 3.2. Without my post you won't be able to view several other charts I reference (on clawbacks and First American Title's estimates) , but hopefully you will get the idea. The other data is also linked and referenced in my report.
sigtarp.gov
Just looking at the Old Maid Cards that Gumnut has insured, guaranteed, purchased through its agency arms, the number comes to $9.178 trillion. Plus the Fed will have purchased $1.25 trillion in agency MBS and $175 billion in agencies by the end of March. There has been much talk about the Fed continuing their purchase program past March 31, but the truth of the matter is that Gumnut has pretty much run out its string and has ALREADY purchased, insured or guaranteed a very large part of all the estimated $11.6 trillion residential mortgage market.
Perhaps rather than guess at how much more intervention Gumnut can engage in, it is time to guess at how big the losses will be on the exposure it now has. Some guidelines: recoveries in the $5.8 trillion prime markets have been 58%, Alt A is $2.4 trillion, where recoveries are 43%, subprime is $1.5 trillion, recoveries are 30%, option ARMs is $0.7 trillion recoveries are 40%.
If we apply a very conservative and perhaps too low recovery 60% on Freddie and Fannie, and 50% on the others that the Gumnut owns or guarantees, we can total all the 90 day delinquencies (the data above is a little dated) and just sort of ball park it.
Fannie Mae 5.29% 90 + delinquent on $3.566 trillion=189 billion, loss after recovery is $75 billion
Freddie Mac 3.87% delinquent on $2.623 trillion = 101 billion, loss is $40 billion.
Despite the hype about sending these back (called pushbacks) to the banks because of underwriting flaws, in reality not much of that has happened so far. (I provided a chart showing $8 billion in the 3rd quarter).
FHA has old 3rd quarter data, so I will increase it a little to 8% for our purposes, it will probably be higher. These are near zero percent downs so I will use 40% recoveries. The loss is $36 billion. The VA loss would be about $7 billion.
The Federal Reserve is hiding its portfolio, but we can give them the benefit of the doubt and assume it is almost all prime loans, but we shouldn’t be terribly surprised if they were more aggressive. Losses on these are accelerating, and depend on vintage. Still a very high percentage of these were taken out between 2005-2009. There just isn’t enough product on hand for the Fed to have not loaded up on these vintages given $1.4 trillion worth of purchases. Losses are now generally running higher than this but I will use a very conservative 5% delinquent and 60% recovery to put the loss at $28 billion. Presumably the Fed can get this back from the agencies Gumnut insuring Gumnut Ponzi scheme.
At this juncture the losses to Gumnut would be around $200 billion. If the market were standing on its own, and the trajectory was at least flattening, that kind of loss might not be critical. The problem is that it is not, and the Gumnut is ALREADY all in. There are those who believe house prices are only 60% of the way to the trough. Personally I feel that First American estimate is the most realistic in that the decline is greater at 30% than the average of the indexes, and there is another 10-12% to go. The key variables to judging the ultimate hit would be employment, home prices, and Gumnut involvement/distortion. All need real stabilization, which is not happening at the moment. |
