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Politics : The Obama - Clinton Disaster -- Ignore unavailable to you. Want to Upgrade?

To: H-Man who wrote (2526)	12/2/2008 6:35:45 PM
From: DuckTapeSunroof	1 Recommendation Respond to of 103300

Thanks, H-Man! You caught a typo (otherwise known as a 'brain fart') in one of these two main points I made in my post: The MAIN TRUST of my post was this: "For just one example: ALL the sub-prime mortgages issued in America over the entire past three years would not add up to even 1/100th. the size of the unregulated Credit Default Swap Markets (which amount to over $50 Trillion in notional value....) But I also followed with this one, and that's where my typo slipped in: "And, only a fraction of those sub-prime mortgages (issued in the past three years) have gone belly-up (some 95% or so are still performing, and sub-primes issued prior to the recent three years are mostly no problem at all... performing in line with other mortgages). What I should have said (& thought I had, until you corrected me) was "PRIOR to the last three years". I was trying to make the point that lending standards had been relaxed so in the recent three years that the heart of our problems with sub-prime (& Alt-A), and the securitizations created from them, lay in the most recent vintages of paper... with earlier vintages performing in line with expectations from the computer modeling. Thanks again! But, I admit I'm still a little puzzled by the first link you posted. The FIRST link that you posted CLEARLY stated: (September 5, 2008) — The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.41 percent of all loans outstanding at the end of the second quarter of 2008, up six basis points from the first quarter of 2008, and up 129 basis points from one year ago on a seasonally adjusted basis, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. And: ... For subprime loans, fixed rate foreclosure starts increased 27 basis points to 2.07 percent and subprime ARM foreclosure starts increased 31 basis points to 6.63 percent. And: ...The seasonally adjusted delinquency rate increased 22 basis points for prime loans to 3.93 percent. The delinquency rate decreased 12 basis points for subprime loans to 18.67 percent, decreased nine basis points for FHA loans to 12.63 percent, and decreased 40 basis points for VA loans to 6.82 percent. I can't but help to note that "6.41%" is NOT actually "17.85%". (And... 'delinquency rate' should actually be HIGHER than formal classifications as 'non-performing', right?????) Of course, definitions for "non-performing" do vary, as you properly note. (Some banks, if memory serves, have even quietly altered their standards recently for financially reporting non-performing classification out to 120 days and even longer... in an effort to avoid mark-to-market rules affecting their RMBSs which would require adjustments to their capital structure. It seems to be a bit of a rubber ruler now-a-days. <g>) As I was trying to say in my earlier post, PRIOR to the most recent three years' sup-prime issues, sub-prime (written before the lax recent standards) was generally not performing significantly worse than the general mortgage market... so 'performance' appears to greatly depend upon the vintage of the securitization's traunche. (There is also the 'apples-to-oranges' thing when we are bouncing statistics around... the exact composition of the various statistics that we are each pointing to. I note that the first link in your post was talking about 'one to four unit residential' while I was mostly referring to SINGLE family home mortgages, and the securitizations derived from them. I'm sure that you are correct and that the condo markets are much worse overall than even single family are....) Now, I'm sure that there are plenty of Alt-A (the "new" sub-prime <g>) RMBS that are probably not worth even 70 cents on the dollar. They are marked to a market that is currently frozen for all effective purposes. And, lots of things are getting discounted and lumped into the same basket now (fairly or unfairly...) and marked to market by FASB 157. The cycle is reinforcing itself. A few perhaps interesting observations --- John Burns (of John Burns Real Estate Consulting) consults with over 2000 of the largest banks and homebuilders in the country (his client list is a who's who of banks, builders, and hedge funds). He has a reputation for solid research and pulling no punches and is deeply involved in analyzing trends in the housing market. His web site is www.realestateconsulting.com. Burns thinks that home prices will drop by 22% cycle top to cycle bottom, 12% - 15% of which has already occurred. His analysis differs from that of the Case-Shiller Indices, which suggests a much steeper decline. Note in the graph below that the Case-Shiller Index shows home prices rising more than does Burns' work. Part of it is different methodology and part of it is that the CS index focuses on major markets and Burns' work is more broadly based. On a more optimistic note, he thinks new home prices, which started to correct much earlier than existing home prices, should bottom out in 2009, although some particularly overbuilt areas will suffer longer. We are possibly close to a bottom in new home construction, (still... what? 11 months or so over-hand on the market?), and he thinks we will be back to 900,000 new homes by 2012. That is a far cry from the 1.68 million in 2005, but it is also a sustainable number. There is a problem though, and that is the recently enacted housing bill eliminated seller-funded down payments, and this previously was 17% of new home sales.... A more Macro picture. How the Bush era economy was financed by mortgage equity withdrawals: (The red bars show how the economy would look without that borrowing power. George Bush would most likely have been a one-term president, as the economy would have been in a serious recession for two years, followed by a very slow recovery of less than a 1% growth in GDP in 2003-04. Unemployment would have been dismally high. The slogan would have been "It's the Economy, Stupid" all over again. That was what beat his father in 1992 and would likely have done it to the son in 2004.) The above chart stopped at 2006. James Kennedy recently updated the data. Notice below how net MEWs have fallen precipitously in 2008, down 95% from three years ago. On this data alone, GDP should be off by 3% this year. No wonder we are in negative economic territory. In 2005 there was almost $595 billion in mortgage extractions that went into some kind of consumer spending. Remember, according to the graph above, that translated into a 3% rise in GDP. In 2007, MEWs were down to $470 billion, for a boost of 2% to GDP.