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Interesting stuff, Jim.
You said, "The ‘work outs’ will show huge re foreclosures which boost
the statistics and the ultimate cost." I saw the stats a couple months
ago and the delinquency rate for these renegotiated mortgages was
already climbing. I don't recall the percentages, but it looked like
the restructurings simply delayed the inevitable.
From: Jim Ross <jrosscpa@xxxxxxx>
To: markettimers@xxxxxxxxxxxxxxx, realtraders@xxxxxxxxxxxxxxx
Cc: 'Rob Almony' <Ralmony@xxxxxxx>, tonyritenour@xxxxxxxxx, 'Jeff Shumate' <shuma77@xxxxxxx>, scott.kattwinkel@xxxxxxxxxxx
Date: Wednesday, April 8, 2009, 4:07:00 AM
Subject: [RT] Off the charts
Subprime 39.8% 30 day delinquency (over 30 days meaning 2 payments
late) and prime 7%. Here’s some speculation. I was CAO for the
largest retailer and financier of mobile homes in the ‘80s (AMEX
listed, Fortune 1000). I noted delinquencies climbing in about ’84
and warned the CEO who told me to study it. After studying hundreds
of mobile home loan jackets, payment histories and repo records I
found that (and relying upon memory), a sustained 9% delinquency would
ultimately result in the repossession of upwards of 30% of a portfolio
of loans. Out of 100 loans in a given GNMA mobile home security, 40
would be repossessed. If the CEO could have fired me without my
mandatory reporting to the SEC the circumstances of my departure, he
would have done so. In ’86 that company had its best sales and
earnings year in its history. One year and one month later, it filed
Chapter 11. The reserve for future credit losses was woefully
inadequate. Six months later it was converted to a liquidation.
Granted that I’m talking about mobile homes versus site built homes,
I’d maintain that the situations are hardly dissimilar. Negative
equity (which mobile homes historically due to low down payment and
depreciation) creates incentive to default. The difference between
mobile homes and site fixed homes has always been equity, either by
virtue of down payment or site built appreciation. With subprime,
that distinction is gone. No down payment, no appreciation.
What’s the implication of 39.8% delinquency to me? The vast vast
majority of subprime loans will be foreclosed. If you consider the
population homes rather than the population of home loans, one home
can be foreclosed multiple times. If you looked at 100 mobile homes
that were 39.8% past due 2 payments, many of those homes would be
repoed, resold (under preferred terms and concessions) and then repoed
again. Heck, I was showing some GNMA securities studied at near 100%
foreclosure rates; 100 homes in a security and 100 foreclosures (50
homes stick but 50 homes foreclosed twice for example). I was showing
homes that were repoed, resold and repoed multiple times.
Implication, about every subprime loan will be foreclosed….ultimately.
Forget the ‘1 in 5’ will foreclose BS. Closer to 100% than 20%
depending on how you define the population. The ‘work outs’ will show
huge re foreclosures which boost the statistics and the ultimate cost.
And the 7% prime delinquency… about 20% of all homes with prime
mortgages will be foreclosed; 20 out of 100 loans. The latter is more
a guess than the subprime. That’s a lot of homes and It’ll happen
faster than most people think. For my former employer it was feast to
famine in a matter of months but it did not have an unlimited
checkbook as the US Treasury (supposedly) has. The Treasury can make
the agony that much longer.
Just an opinion.
http://www.reuters.com/article/gc03/idUSTRE5363EV20090407
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