by Calculated Risk on 10/04/2007 03:04:00 PM

From Bloomberg: Subprime Delinquencies Accelerating, Moody's Says (hat tip Brian)

Subprime mortgage bonds created in the first half of 2007 contain loans that are going delinquent at the fastest rate ever, according to Moody's Investors Service.

The average rate of "serious loan delinquencies" in the bonds has been higher than 2006 bonds ...

"It is shocking what you see," said Kyle Bass of Hayman Advisors LP, a Dallas-based hedge fund that reported a 400 percent return on its bet the U.S. housing market would fall. "Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life."

by Calculated Risk on 10/04/2007 10:35:00 AM

From the WSJ: Rent Growth Slows a Bit In Sluggish Office Market

... the three-and-a-half year old office recovery is still under way, if showing signs of weakness. The vacancy rate hit its lowest level in six years, dropping to 12.5% in the third quarter from 12.7% in the second quarter, though the pace of absorption -- the change in the total amount of space leased nationwide -- slowed. Absorption totaled 14.8 million square feet in the third quarter compared to 17.3 million in the second.

"There is a slowdown," said Barry M. Gosin, chief executive of Newmark Knight Frank, a New York-based commercial real-estate services firm.

For my area - Orange County, CA - Jon Lansner of the O.C. Register notes: O.C. office vacancies soar

Third-quarter data from commercial real estate brokers show that renting O.C. office space has gotten suddenly easier. Why? New buildings and shuttered mortgage makers add to supply. As a result, the countywide vacancy rate ... rose to 10.9% in the last quarter vs. an average of 7.1% a year ago.

by Anonymous on 10/04/2007 08:49:00 AM

Reader Avinash sends us the following from "Creditflux," which is not something I made up either:

In a new research report entitled "Leveraging CLO illiquidity premia", JP Morgan says that the combination of historically wide CLO liability spreads and near-zero default rates makes this an optimal time for buy-and-hold investors to consider investing in CLOs-squared. It says this is a way to efficiently monetise the current illiquidity created in the "spread rout of 2007".

The report concludes that CLOs-squared offer reasonably low risk relative to the underlying CLOs. Junior tranches in particular offer higher spreads than triple B and double B tranches of regular CLOs with similar or lower risk.

The researchers point out that CLOs-squared are conceptually similar to ABS CDOs, but that they are better suited for leverage. Corporate loans are simpler than subprime mortgages and hence more predictable, argues the report.

Yes, that makes a great deal of sense. These stupid subprime borrowers have been taking mortgage loans that are more complex than corporate loans, but we have no idea why nobody seems to understand what got signed at the closing table. Also, it's an excellent time for investors to look for more leverage opportunities, because this whole problem, you see, was just a matter of the underlying collateral and had nothing whatsoever to do with levering up complex derivatives or having to unwind some goofy structured deal.

Just shoot me . . .

by Anonymous on 10/04/2007 07:20:00 AM

Sorry my posting was so light yesterday, but I was working on my Ten Point Plan in anticipation of being named Mortgage Czar. I actually completed Point One, no sacraments for any public figure who recommends negative amortization ARMs. Then--get this--I find out that apparently this "church-state separation" and "free speech" and some nonsense about these products being legal are going to hamper my plan. Well, jeepers, why call it a "czar" if it can't involve theocratic absolutist ukases? I mean, if it's just going to involve a bunch of posturing with no ability to imprison dissidents, I'll stick to blogging. Why bother to change out of my pajamas for that?

Fear not, though, innovation in the mortgage gig continues apace. From the Washington Post:

CitiMortgage plans to announce today that it has set aside $200 million for mortgages to Washington area residents who have limited credit histories and therefore often end up with high-cost or risky home loans. . . .

To qualify for the program, a person must be in the country legally and have alternate credit lines -- such as rental payments, utility bills or a tithing record -- that a lender can use to evaluate creditworthiness.

Gathering the paperwork to confirm these trade lines historically has been a laborious process that could take months, which often discouraged potential buyers and hurt their chances of closing a deal.

But Neighborhood Housing Services, a sister organization of District-based housing advocacy group NeighborWorks America, will use a system that automates the credit-verification process and delivers results to CitiMortgage within 48 hours.

The technology evaluates whatever information is available at the national credit bureaus as well as from other sources. . . .

Mary Lee Widener, president and chief executive of Neighborhood Housing Services, said the program is set up to comply with technical rules that allow CitiMortgage to service or collect payments for all the loans, even though the loans are resold. CitiMortgage has agreed to work with Widener's group to keep borrowers in their homes should they face job loss, illness or other events that temporarily prevent them from making payments.

"It's important to us that we have one lender to deal with in those situations," Widener said. "Our borrowers have more than their share of life events, but we've been able to stick with them, and it's very rare that we have to move to foreclose." . . .

If the best loan is with CitiMortgage, then CitiMortgage will fund that loan and sell it to Neighborhood Housing Services. The nonprofit group will then sell the loans to State Farm and Fannie Mae.

So, basically, we have CitiMortgage offering to do $200MM of "nontraditional credit history" loans, which have been around for what, 20 years? Only this time, they'll be really fast because technology is involved, and we know that the biggest problem with loans to first-time homebuyers and persons with possibly shaky credit has always been speed: you really need to do those loans just as fast as you do the ones based solely on simple-minded FICO qualification. And that thing about the importance of a single lender/servicer? Yeah, well, that would involve having some outfit like Citi actually hold the risk on these loans, and we can't have that. So let's think outside of the box: we'll sell the loans to an investor, just like we always have, and Citi will just be the servicer, like it always has, and the answer to all questions will be "I can't do that, it's not in my PSA."

Mortgage Czar? We don't need no steenkin' Mortgage Czar. We're doing just fine innovating our way out of this mess.

by Calculated Risk on 10/03/2007 08:45:00 PM

From Reuters: Congress calls for "mortgage czar"

Lawmakers called on Wednesday for a 'mortgage czar' to help cope with an expected wave of foreclosures from the U.S. housing slump but Alan Greenspan said the credit crunch was past the worst.

"We are beginning to see the frenzy calm down," the former chairman of the Federal Reserve told a conference in Lisbon. "Unless we get secondary effects the worst is over."

Whoa! Hold it right there. Whenever Greenspan says the 'worst is over', watch out! Here is a quote from October 9, 2006 (almost exactly one year ago) via Bloomberg: Greenspan Says `Worst' May Be Past in U.S. Housing

Former Federal Reserve Chairman Alan Greenspan said the ``worst may well be over'' for the U.S. housing industry that's suffering its worst downturn in more than a decade.

Tanta for Mortgage Czar!