10am EST – Moody’s Hits Lehman Due To ALT-A…Here Comes The ALT-A Crisis!

Posted on May 5th, 2008 in Mr Mortgage's Personal Opinions/Research

The ALT-A crisis  may make the subprime crisis look like a bump in the road when all is said and done. This story is really picking up steam, but it seems that, as with the suprime crisis, the mainstream media is not giving this much attention. In my opinion, the ALT-A space collapsing could cause much larger crisis for the broader economy because ALT-A loans cut across all socio-economic boundaries and were used most heavily in in the nation’s most affluent cities/regions. 

Many said a year ago when New Century collapsed that they were the ‘canary in the coal mine’. I have always said ‘the entire subprime sector is the canary in the coal mine’.

Below is the Moody’s/LEH news just released and below that are various Mr Mortgage reports on the ALT-A crisis coming to a city near you right now. -Best Mr Mortgage 

12:59PM Lehman Brothers: Moody’s takes action on certain Lehman Alt-A deals (LEH) 46.30 -0.76 : Moody’s has downgraded the ratings of 28 tranches from eleven Lehman Mortgage Trust deals. Three tranches remain on review for possible further downgrade. Additionally, 103 tranches were placed on review for possible downgrade. The collateral backing these transactions consists primarily of first-lien, fixed, Alt-A mortgage loans. The ratings were downgraded or placed on review, in general, based on higher than anticipated rates of delinquency, foreclosure, and REO in the underlying collateral relative to credit enhancement levels.

LEHMAN’S DIRTY ALT-A EXPOSRE – Mr Mortgage youTube Series



18 Responses to “10am EST – Moody’s Hits Lehman Due To ALT-A…Here Comes The ALT-A Crisis!”

  1. Yeah I shorted LEH (@ 47.45) right after I saw your youtube videos Mr. M.

    Question – Do you know anything about Option One? HR Block obviously owns it, but how big was the loan book? Does HRB still hold the toxic debt? Thanks.

  2. OOMC, owned by HRB, still has all the liability for all those loans that default in the event of early payment defaults or fraud, which represent a large percentage of defaulted loans. The big question is, are their off balance sheet trusts which hold the loans, a liability to HRB if they fail or is HRB the one and only top 10 subprime lender to skate. How many other companies got to totally avoid any off-balance sheet trust/SIV liability? I think this is a huge story and I remain very short HRB in the interest of full disclosure.

  3. […] Read the rest of this great post here […]

  4. Thanks. I am short a small amount for now. That director that recently bought a bunch of stock has me somewhat spooked. I am well aware that these guys are generally categorically idiots but….

    Also, I see that short interest went from 15.29 million shares to 10.84 shares recently. Only 3.5% of the float is shorted which seems low in this time of more aggressive financial shorting.

  5. Yes HRB allegedly “sold” Option One, but I never got a clear answer regarding who has the residual liabilities. I guessed it was HRB (how else could they do the deal)?, and so have remained short the company as well.

  6. This is just the beginning, subprime was weakest and first to fall, Alt-A has been falling since August, now prime is starting……….figure out the reserve requirements for the banks when they have to put their Alt-A loans in to the mix, OUCH……..and still they are ignorantly no seeing the Prime disaster in line for fall…….they all fall when collateral gets to 50% or less of what everyone owes, no one can fix ALL the mortgages…………

  7. Will this really be such a crisis now that the Fed is allowing these Wall Street investment banks to borrow from them? They will probably dump the bad securitized Alt-A loans at the Fed and let the taxpayers deal with the consequences. It seems Bernanke is going to pump any amount of money into all these insolvent financial companies to keep them from going under.

  8. in my comment above I was talking more about a disaster for the housing sector and consumer. The investment banks, who actually made most of this crisis, are being protected by the powers-that-be. That being said, I truly believe more will go the way of Bear. What impact did the Bear collapse really have. Moral Hazard cuts both ways…it gives the investor a feeling of invincibility and it makes those left standing less important.

  9. what is hrb?

  10. Frank,

    They can dump them on the Fed but they must be marked down reasonably before the Fed will take them i exchange for the treasuries. It’s also only a short term loan. Before the fed would take it again it would need to be marked down if the value fell.

    Bernanke is out tonight raising the red flag about more foreclosers in 08 than 07. New Fed data also indicates bank loans are getting tighter as they should but this is not what most people want to see as it will stall the economy.

  11. I asked my local subprime lender what he thought about Option One. He said that they would take his business even when he didn’t have a license.

  12. With oil at 122$ and going very soon to 200$, I do not think the FED can do anything. At 122$ or at 200$ a barrel, the paper will fall to zero. Market forces will prevail. How in the hell can you bail out all this junk ? 6 trillion dollars with a puny 500 billion of reserves ? Bernanké like Paulson are jokers. Jim Rogers says that the FED will soon be bankrupt. I think he has a point. The FED is kaput.

  13. […] Moody’s Hits Lehman Due To ALT-A…Here Comes The ALT-A Crisis! […]

  14. What’s poignant about your analysis is that Alt-A borrowers are also likely to understand finance, and the time value of money. A less educated borrower might be cowed, or, culturally coerced into sticking it out in a negative equity property. This would be much less true of the more educated borrower, or simply a borrower who has finance experience. The analysis of continuing to make payments on a property that has lost 30% of its value when, other positive opportunities exist for one’s capital, is not that hard to make. Just go on to any chatboard and start talking about such an idea, and you will very quickly get a “sort” among responders, as to who gets it and who doesn’t. The latter will often shout about Ethics and Values. Yeah, sure.

    It was funny listening to the Wachovia CC a couple of weeks back, with the top brass saying “Gosh, you know it’s really fascinating to discover that the number one cause of default is not credit score, or jobs held, or cash flow–it’s negative equity.”


  15. Right Gregor…I do not think its any coincidence that the bank stocks hurt the most other than straight subprime players, are major option arm holders beginning with the American Home collapse mid 2007. WAMU, CFC, IMB, DSL, FED, WB, BKUNA, LEH, BSC are among the largest option arm holders and many of those are among the biggest borrowers at the FHLB of Atlanta who decided they wanted to lend against ‘investment grade’ pay option arms…that’s for a different topic though. Negative equity is a killer across all loan types. It makes the prime loan subprime. By the way are you still over the the ‘other’ Agency?

  16. Hi. Uhmmn. I’m not with any agency. My area is oil, and the global energy markets. But, I have to stay competant in all areas as I do play in the equity markets, and must stay abreast of risk there.

    I began worrying about the USA debt and credit situation in 2003. Curiously, problems in that area have created wonderful entry points in the energy sector for some time now. Especially in the last 12 months. I think there’s more coming.


  17. Yeah it’s called AIG and CITIGROUP.
    Warren’s Buffet Wells Fargo is next.

  18. What will be the impact on the rest of the banking sector of the 500 billion fire sale by Citigroup ? Who is next ?

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