bills_fan Posted July 22, 2008 Share Posted July 22, 2008 In all fairness, defaults should be counted when there's a payment default. We can split hairs whether it should be 30, 60 or 90 days, but since uncured payment defaults can trigger accounting recognition by the banks that's a very important measure. (and yes bluefire, payment defaults are at much higher levels than foreclosures. There's been an upward hockey stick trend in payment defaults across the board since early 2007, and probably won't peak until 2009) True, but late (even by 90 days) is not yet foreclosed. You may still get paid at 90 days late with a workout provision. But I see both your and Bluefire's points, and it should be considered. Although I have heard that "late" as defined as 90 days, was a small, fractional number as well (at least 2 months ago, when I heard it). Link to comment Share on other sites More sharing options...
SD Jarhead Posted July 22, 2008 Share Posted July 22, 2008 Someone mentioned earlier that its not so much the number of homes but the value of the homes. Since so many forclosures and delinquencies are clustered in California and Florida where home values are much higher than the national average, it is having a greater effect on the market than if the forclosures were in Cleveland or Buffalo. Link to comment Share on other sites More sharing options...
DC Tom Posted July 22, 2008 Share Posted July 22, 2008 True, but late (even by 90 days) is not yet foreclosed. You may still get paid at 90 days late with a workout provision. But I see both your and Bluefire's points, and it should be considered. Although I have heard that "late" as defined as 90 days, was a small, fractional number as well (at least 2 months ago, when I heard it). "Default" is one late payment. With good reason: if you're packaging mortgages into bonds, you need to guarantee the flow of cash from lender through the trust to the bond holder. Defaults can trash that cash flow. CMO's are set up to take in to account a certain level of default...but when defaults start to regularly exceed what's predicted by the models, banks have to start dipping in to reserves to fund bond payments...mortgage bonds start becoming devalued as buyers start worrying about bond defaults...which can cause bank reserves to become devalued (e.g. holding a lot of mortgage bonds, which I believe is part what happened to Bear Stearns and IndyMac). And on top of that, the reserve requirements for issuing mortgage bonds tend to allow an issue to be highly leveraged, so any devaluation is magnified. Basically, it turns out that the capital markets were driven by home prices, which were in turn driven by the availability of cheap money in the capital markets...which meant that disruption in either was going to tank both. And because it was all highly leveraged, it didn't take a whole lot of disruption to get things rolling. Which is why, although the individual consumer may think that being a few days late on the mortgage isn't "default", it most certainly is considered so in the mortgage industry. Link to comment Share on other sites More sharing options...
Chef Jim Posted July 22, 2008 Share Posted July 22, 2008 "Default" is one late payment. With good reason: if you're packaging mortgages into bonds, you need to guarantee the flow of cash from lender through the trust to the bond holder. Defaults can trash that cash flow. CMO's are set up to take in to account a certain level of default...but when defaults start to regularly exceed what's predicted by the models, banks have to start dipping in to reserves to fund bond payments...mortgage bonds start becoming devalued as buyers start worrying about bond defaults...which can cause bank reserves to become devalued (e.g. holding a lot of mortgage bonds, which I believe is part what happened to Bear Stearns and IndyMac). And on top of that, the reserve requirements for issuing mortgage bonds tend to allow an issue to be highly leveraged, so any devaluation is magnified. Basically, it turns out that the capital markets were driven by home prices, which were in turn driven by the availability of cheap money in the capital markets...which meant that disruption in either was going to tank both. And because it was all highly leveraged, it didn't take a whole lot of disruption to get things rolling. Which is why, although the individual consumer may think that being a few days late on the mortgage isn't "default", it most certainly is considered so in the mortgage industry. This explains it pretty well Link to comment Share on other sites More sharing options...
SD Jarhead Posted July 22, 2008 Share Posted July 22, 2008 Nice find Chef! Now I know what's going on...I'm a visual learner. Link to comment Share on other sites More sharing options...
GG Posted July 22, 2008 Share Posted July 22, 2008 True, but late (even by 90 days) is not yet foreclosed. You may still get paid at 90 days late with a workout provision. But I see both your and Bluefire's points, and it should be considered. Although I have heard that "late" as defined as 90 days, was a small, fractional number as well (at least 2 months ago, when I heard it). The data is reported on a 30, 60, 90 & 120 day periods. At this point the four are fairly evenly spread out as far as numbers go. If you want to look at a silver lining that could indicate the trough as you're aging the payment defaults through the recovery cycle. The 30 day defaults dipped in 1Q, but it's still too early to say whether it's a positive sign or a temporary effect of the rebate checks. 2Q data will be very critical. Link to comment Share on other sites More sharing options...
bills_fan Posted July 22, 2008 Share Posted July 22, 2008 "Default" is one late payment. With good reason: if you're packaging mortgages into bonds, you need to guarantee the flow of cash from lender through the trust to the bond holder. Defaults can trash that cash flow. CMO's are set up to take in to account a certain level of default...but when defaults start to regularly exceed what's predicted by the models, banks have to start dipping in to reserves to fund bond payments...mortgage bonds start becoming devalued as buyers start worrying about bond defaults...which can cause bank reserves to become devalued (e.g. holding a lot of mortgage bonds, which I believe is part what happened to Bear Stearns and IndyMac). And on top of that, the reserve requirements for issuing mortgage bonds tend to allow an issue to be highly leveraged, so any devaluation is magnified. Basically, it turns out that the capital markets were driven by home prices, which were in turn driven by the availability of cheap money in the capital markets...which meant that disruption in either was going to tank both. And because it was all highly leveraged, it didn't take a whole lot of disruption to get things rolling. Which is why, although the individual consumer may think that being a few days late on the mortgage isn't "default", it most certainly is considered so in the mortgage industry. The real problem with the models was that they assumed that default/foreclosure would be a localized event (loans would fail in one place, but not nationally). The models never accounted for the risk of national default/foreclosure. The securities were structured in the same way. For example, lets say you were a hedge fund, that wanted to beef up its cash every December. You could purchase a tranche of mortgages that only included December payments. And, then lets say that you believed your model, that repayment risk was localized, so you ensured your tranche was comprised of loans made all over the country. And lets say you didn't think you needed the AAA piece, but bought the BBB piece, based on your model and because it was much cheaper. You could be screwed when the tranche itself hits ceratin events of default/foreclosure and the AAA piece gets paid first, you may get nothing off this rated security, let alone your promised cash flows. Link to comment Share on other sites More sharing options...
meazza Posted July 23, 2008 Share Posted July 23, 2008 http://www.globeinvestor.com/servlet/story...xx0723/GIStory/ Link to comment Share on other sites More sharing options...
Chef Jim Posted July 30, 2008 Share Posted July 30, 2008 I know many laughed at E. Brady and 'Billy Basement' BUT, I've been snapping up silver. In times like this it is a great hedge. Dwight has said this is the direction we're heading and his predictions have been true to this point. The 'perfect storm' is coming. If Israel hits Iran, who knows what will happen in the economic world. We are in some mighty scary times right now, the likes of which I've never experienced in my lifetime. While we aren't completely in the toliet at this time, all signs point to us getting wet real soon. Just my $.02. This is why I don't listen to the talking heads or invest based on what I read in articles. Look at the date of this post and look at this silver chart. How much did you buy on the 14th? Link to comment Share on other sites More sharing options...
John Adams Posted July 31, 2008 Share Posted July 31, 2008 This is why I don't listen to the talking heads or invest based on what I read in articles. Look at the date of this post and look at this silver chart. How much did you buy on the 14th? For reasons that have to do with a case I once worked on, I got to know the metals-bugs well. They come out to party when the price is going up, telling everyone that the sky is falling and they are so smart to own metals. When the price goes down, they scatter. Link to comment Share on other sites More sharing options...
DC Tom Posted July 31, 2008 Share Posted July 31, 2008 This is why I don't listen to the talking heads or invest based on what I read in articles. Look at the date of this post and look at this silver chart. How much did you buy on the 14th? Typical pump 'n' dump... Link to comment Share on other sites More sharing options...
SD Jarhead Posted July 31, 2008 Share Posted July 31, 2008 So are we out of the woods because the Fed saved Fannie and Freddie? Short term, things are looking better, but I don't think this story has quite ended yet. If Israel hits Iran, stand by because commodities like oil and metals will skyrocket. Stay tuned... Link to comment Share on other sites More sharing options...
GG Posted July 31, 2008 Share Posted July 31, 2008 So are we out of the woods because the Fed saved Fannie and Freddie? Nope. Just bought some time for things to stabilize, hopefully. Link to comment Share on other sites More sharing options...
Chef Jim Posted July 31, 2008 Share Posted July 31, 2008 So are we out of the woods because the Fed saved Fannie and Freddie? Short term, things are looking better, but I don't think this story has quite ended yet. If Israel hits Iran, stand by because commodities like oil and metals will skyrocket. Stay tuned... And I'm just bustin' your nutz. I don't ever want people to lose money. Link to comment Share on other sites More sharing options...
SD Jarhead Posted July 31, 2008 Share Posted July 31, 2008 No worries Chef...Just don't unload those silver (colored) cuff links too soon! Link to comment Share on other sites More sharing options...
Chef Jim Posted July 31, 2008 Share Posted July 31, 2008 No worries Chef...Just don't unload those silver (colored) cuff links too soon! Oh hell no, those are sweet! Link to comment Share on other sites More sharing options...
meazza Posted August 9, 2008 Share Posted August 9, 2008 An interesting view from an insider: http://www.economist.com/finance/displaySt...ory_id=11897037 Link to comment Share on other sites More sharing options...
GG Posted August 11, 2008 Share Posted August 11, 2008 An interesting view from an insider: http://www.economist.com/finance/displaySt...ory_id=11897037 Pretty much spot on the mark. Link to comment Share on other sites More sharing options...
Chef Jim Posted August 11, 2008 Share Posted August 11, 2008 Pretty much spot on the mark. When is comes to investing hindsight is always 20/20. Link to comment Share on other sites More sharing options...
GG Posted August 11, 2008 Share Posted August 11, 2008 When is comes to investing hindsight is always 20/20. It's not just that - the guy gave a damn good account on the battle inside financials on business vs risk management. This is also a good read for anyone interested in arcana of banking & risk management. Link to comment Share on other sites More sharing options...
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