by Calculated Risk on 12/06/2007 12:11:00 PM

Mr. Bush speaks at 1:40PM ET. Mr. Paulson at 1:45PM. Tanta at 2:00PM.

OK, I'm just kidding about Tanta, but I'm looking forward to her comments.

by Calculated Risk on 12/06/2007 10:07:00 AM

The MBA is reporting today (no link) that mortgage delinquencies increased sharply in Q3 2007. A few data points:

Total, 1-4 units delinquences increased to 5.59% from 5.12% in Q2.

Prime increased to 3.12% from 2.73% in Q2.

Subprime increased to 16.31% from 14.82% in Q2.

Delinquencies and foreclosures increased for every category, including prime fixed rates.

by Calculated Risk on 12/06/2007 01:46:00 AM

From the WSJ: 'Super Fund' for SIVs, Hoped for $100 Billion, May Be Half the Size

The three banks assembling a "super fund" ... are scaling back its size due to a lack of interest ...

Originally envisioned as a $100 billion fund that would buy assets from the struggling investment vehicles, the fund may now wind up being about half that size... The banks, which have informally been seeking participation from other financial institutions, expect to start a formal syndication process within the next several days.

Two weeks ago it was "next week". Now it's the next several days. Shrinkage and schedule slippage are not a good signs for the Citi bailout Super SIV cleanup fund.

by Calculated Risk on 12/05/2007 09:11:00 PM

From Standard & Poor's: S&P Cuts All Adams Square Funding I Rtgs To ‘D’ On Liquidation (hat tip Brian)

Standard & Poor's Ratings Services today lowered its ratings to 'D' on the senior swap and the class A, B-1, B-2, C, D, and E notes issued by Adams Square Funding I Ltd. The downgrades follow notice from the trustee that the portfolio collateral has been liquidated and the credit default swaps for the transaction terminated.

The issuance amount of the downgraded collateralized debt obligation (CDO) notes is $487.25 million.

According to the notice from the trustee, the sale proceeds from the liquidation of the cash assets, along with the proceeds in the collateral principal collection account, super-senior reserve account, credit default swap (CDS) reserve account, and other sources, were not adequate to cover the required termination payments to the CDS counterparty. As a result, the CDO had to draw the balance from the super-senior swap counterparty. Based on the notice we received, the trustee anticipates that proceeds will not be sufficient to cover the funded portion of the super-senior swap in full and that no proceeds will be available for distribution to the class A, B, C, D, or E notes.

Today's rating actions reflect the impact of the liquidation of the collateral at depressed prices. Therefore, these rating actions are more severe than would be justified had liquidation not been ordered, in which case our rating actions would have been based on the credit deterioration of the underlying collateral. Across the cash flow assets sold and credit default swaps terminated, we estimate, based on the values reported by the trustee, that the collateral in Adams Square Funding I Ltd. yielded, on average, the equivalent of a market value of less than 25% of par value.

Bloomberg is reporting (no link) that $165 million of debt, originally rated AAA will not be repaid.

From triple AAA to nothing. That is a deep cut.

by Anonymous on 12/05/2007 07:30:00 PM

I am, in fact, working on detailed post about The Plan. Since it appears there will be details released tomorrow, I expect to have more worthwhile to say after that.

But, to speak to what just got released (as presented in Bloomberg): this thing with the FICO score buckets seems to have taken a lot of people aback. Certainly we hadn't heard explicit mentions of FICO bucketing in the earlier hints about The Plan.

I think what this is about is a way to keep this focused on subprime loans. As regular readers of this blog (at least) know, there really aren't hard-and-fast definitions of subprime. Saying that efforts will be "prioritized" by FICOs under 660 is a way to try to target this effort to what we would consider "subprime," regardless of how the loans might be described by a servicer or in a prospectus.

And that, really, is a way to target the "freeze" to start rates that are already pretty high. I think some people are getting a bit misled by the idea of "teaser" rates here. As Bloomberg reports quite correctly, the loans being targeted have a start rate in the 7.00% to 8.00% range. (My back-of-the-envelope calculation is a weighted average of about 7.70%, with a weighted average first adjustment rate of just over 10.00%.) Nobody wants to come out and say that "Hope Now" is all about freezing just the highest initial ARM rates that there are, but that's in fact what it's about.

So asking, in essence, why we are "rewarding" people with the worst credit profiles is, really, missing the point. The point is that the cost of this goes directly to investors in asset-backed securities, and those investors are being asked to forgo 10% (the reset rate) and take 7.70% (the current or start rate). They are not being asked, say, to forgo 7.70% and take 5.70%, which is roughly what it would be if this "freeze" were extended to the significantly-over-660 crowd (Alt-A and prime ARMs).

So far, I'm prepared to believe assurances that this will not involve taxpayer subsidies: the cost of this is, actually, going to be absorbed by investors in mortgage-backed securities. This is why "good credit" borrowers are not going to be "rewarded"--because investors cannot be brought to forgo that much interest. Somebody did the math, and somebody concluded that freezing a rate that is still about 200-250 bps over the 6-month LIBOR isn't going to be a disaster (at least not compared to having to foreclose these things).

More tomorrow.