S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS

Posted on July 30th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

House prices have fallen off of a cliff in the past year, especially in CA where according to DataQuickthe median price is off 32% since last summer.  Today, S&P got spooked and finally took this into consideration and slashed ratings across Prime, Alt-A and Subprime RMBS (less than 1-month ago they affirmed the same ratings). Fitch echoed similar sentiment last week…this is a good read too.

This is the first summer selling season without exotic loan types such as Pay Option ARMs, second mortgages to 100% CLTV, Stated income/stated assets, aggressive intermediate-term ARMs etc to drive affordability meaning this summer selling season should end up considerably weaker than expectations and previous years.

Sales, while climbing ever so slightly over the past few months, are actually falling when you take out foreclosure-related sales, which made up some 42% of the entire CA home sales market last month. When stripping out foreclosure-related sales ‘organic’ sales for June were at a multi-decade low and not even at the pace of new foreclosures. Please see my June CA Home Sales Report and June CA Foreclosure Report .

Subprime foreclosures have leveled off and began to decline slightly but Alt-A defaults, which lead foreclosures by 4-6 months are surging led by Pay Option ARMs.

In response to the obvious continued house price depreciation awaiting heavy Jumbo Prime and Alt-A regions once summer seasonal demand stops in Aug/Sept and massive defaults/foreclosures follow, S&P jumped ahead for once and downgraded a plethora of Jumbo prime, Alt-A and Subprime RMBS today.

The raters are finally understanding the ominous impact that negative equity has across all loan types and borrower grades. Negative equity knows no bounds.  While factoring in the unprecedented home price deprecation seen in the past 12-months and projecting that out, they are discovering that those who purchased a home as early as 2004 are now under water and at an exponentially greater risk of default.  Even many who purchased much earlier and put a second mortgage on the property are in a negative equity position.  This is making their modeling systems ‘TILT’.  Due to this I believe we will see some serious ratings actions over the next 90-days stretching deep into the heart of the ‘Prime’ loan sector.

S&P also focuses in more closely this time around on later vintages from 06-07. This is not so great for those thinking that later vintages are ‘better’ such as those reporting that the Merrill CDOs sold for pennies on the dollar were ‘worse’ because they consisted heavily of 2005 and prior.

In my opinion, 2005 and prior are BETTER than 2006-2007 because underwriting standards were better and those that bought their homes in 2005 and prior and did not cash out since, owe closer to the current value of their home and therefore are in less of a negative equity position. – Best Mr Mortgage

NEW YORK, July 29 (Reuters) – Standard & Poor’s revised higher its loss assumptions for a variety of residential mortgage-backed securities on Tuesday, amid concerns home prices may record deeper-than-expected declines and drive loan losses higher.

In early July, the rating agency affirmed its loss assumptions for U.S. RMBS 2006 vintage, based on its outlook for the housing market. It projected an additional 10 percent decline in home prices by June 2009.

Since then, however, weaker-than-expected U.S. housing and mortgage loan performance data in July led S&P to modify its default curve methodology for 2006 and first-half 2007 loans in the U.S. subprime, prime jumbo and Alt-A RMBS market.

S&P noted the rising level of foreclosures and the costs associated with them, the increased carrying costs of properties held in inventory and distressed sales for its latest revision. Declining home sales will depress prices further, it said, and boost losses more than previously assumed. Continued at Reuters.

Source: Reuters http://in.reuters.com/article/marketsNewsUS/idINN2937295020080729

Other Related Mr Mortgage Reports

Mr Mortgage: June CA Home Sales Report

Mr Mortgage: June CA Foreclosure Report

Mr Mortgage: Mortgage Implosion Round 2: The Pay Option ARM

Fannie/Freddie: Massively Underestimated Risks

28 Responses to “S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS”

  1. I think the ratings agencies, fearful of shareholder lawsuits and increased regulation, are beginning to get ahead of these curves, rather than way behind them.

    I think this trend is just beginning. It should intensify in the future.


  2. S & P just seems to be stating what everyone knows about the MBS issued from 2005-2007; it is an 800 pound gorilla in the room and it is throwing shit everywhere…

  3. Meanwhile.. the S&P index is up.. as is the Dow.. as are the financials..


  4. Well. Buy on the bad new. Anyways your president emperor Bokassa Bushie has just signed the bailout law. It’s called “Free money for all by little buddies in banking.” Oh shooot it’s not for you. It’s just for the hankie panky. And there is this other joker Bernankéké that has prolonged the TAF financing facilities. Don’t have to bullish on the economy to be bullish. Just have to print incredible amount of money paper and it’s PARTY TIME !

  5. Correct me if I’m wrong, but isn’t inflation going to hurt all those Treasuries? I’d think the Fed would be trying to cut off the money supply? Making deflation.

  6. Can you say “Mark to Market”

    Maybe L3 cannot be touched, but L2 surely can, and lot’s of this crap is sitting there as well.

    2 years late, and 1 trillion dollars short but hey things are getting more realistic FINALLY!

    So what is the impact to Fanni.. er excuse me, I should say the Tax Payers? We all know they are sitting on piles upon piles of toxic, worthless paper! An immediate $50 Billion to get startd I am thinking, and a whole lot more after that for sure…

    So how much do you think our prudent, law abiding, saving, Tax Paying AS%#* are on the hook for initially? What will be the ultimate damage to our childrens children?? $800 Billion? What percentage of their tax dollars will our childrens, childrens, children be paying for all of this… still? Hmmm…

  7. od, that truly is the comical part of all of this. While our incompetent Fed continues to keep rates down and print massive amounts of money, there is massive amounts of deflation going on. Their prop up ideas and antics are only serving to devalue our currency even further and just stripping additional wealth from Americans while we are getting hammered and losing even more wealth from the deflation that is going on. STAGFLATION is here!!!

    As Peter Schiff said… the Government involvement is only going to make matters worse in the end for us all. Leaving well enough alone would have been painful, but this is going to be so much worse and last so much longer!!!

  8. So our government is into destroying it’s own value? Great. My head is spinning…

    Is the rest of the world just going to sit on the sidelines and accept this?

    But is this a likely scenario since nothing is B&W?:

    What if our gov’t creats massive hyper-inlfation, then immediately creates hyper-delfation?

    What would happen if this was true?

  9. Oh hell…Stagflation has been her for over 10 years now. It’s only the bubbles that made us feel richer.

  10. Feelings ah feelings. like in the song.

    So now that Bernanké and Paulson are raping right and left, you are feeling better ? Nothing better than a good violent rape, a massive robbery and an assault by your bums in Washington, at the FED. So you feel now very very rich ? VERY RICH INDEED.

    Wall Street bums are lovin it. Free lunch. Big fat bonuses for the pigs at the end of the year. Hey it’s the taxpayer that’s paying. You must be really feeling proud to be an American ?

    I like this emergency options on TSLF. It’s like handing over the printing press to the boys. “Here you are boys! You can print what pleases you. Uncle Bernanké is going to bed.” Be happy. Can I have of your free money ?

  11. Well not exactly destroying it intentionally mind you. That is what makes them so incompetent. Mr. B. is following the lead of Greenspan proving that he is as equally incompetent as Greenspan was. He thinks we can inflate our way out of this mess, and in some cases you can, but not with a massive amount of deflation going on along with a very weak economy and high unemployment. In this state one cannot afford the inflation. Now we have stagflation where wages remain stagnant and with very low economic growth, but inflation runs rampant like it has.

    The rest of the world is not sitting by at all, but they have potentially huge losses on their hands if they were to bail on the US dollar. There has been talk about pegging oil to the Euro, but that won’t happen because the Euro will be in bad shape just like the dollar by this time next year. What goes around comes around. China has spoke about letting its currency float but they can’t afford too with the amount of inflation they have going on right now. Trust me as Russia was selling 50 Billion of Fannie and Freddie held assets it woke people up in Washington.

    We are going to wind up in an eventual deflation only period with hyperdeflation staved off by the mere printing of money. Unless we get to a point where we can no longer do that too then we are safe from hyperdeflation in my opinion. We will however enter into a depression like deflation period that will last several years. That means as always during these periods that cash is king, and you don’t want to own anything if possible. In other words let the fools rush out to buy condos and boats etc. because they will be even more worthless in no time. A prolonged slump has very dire affects on anything that isn’t new. People give shit away during these times to survive. Less is more.

    I see oil coming back to 100 pb and gold back to 600 before long. Their is no issue with the supply of oil and demand is falling through the floor. Have you been refused gasoline for your car recently? I didn’t think so… Gold is no longer tied to the currency so it is purely speculative now. We would need Holland type bulb hysteria for that to happen.

    That is how I see it anyway…

  12. Anybody here ever notice how much more frequent bubbles have been happening? And also how much bigger they’ve been getting?

    Who can predict what the next bubble will be? I don’t think it will be oil…that’s too obvious. You think it could be alternative energy?

    Boy, if enrgy and infrastructure are the next bubbles, boy are those going to hurt when they POP!

  13. Stu,

    If it was possible for certain people, would you recommend in paying off your mortgage and owning your property outright during a deflationary period?

    And wouldn’t you want to buy assets at the bottom of a deflation? I can only imagine how cheap everything would be.

    I trust the roof over my head that I own, then that paper fiat currency. Am I wrong??

  14. A home has never been an investment vehicle per say…

    At times in this country’s history one could have made a lot of money on home speculation if and only if perfectly timed (mostly luck). It is very tough timing the populas psychy however…

    You want to load up on future new available assets at or near the bottom. Land is good during this period. Prime lot locations for the future would be owners coming out on the good side of things. People want new that can afford it and settle for used when they can’t. You prepare for the future buyers and let the existing ones squablle over the old stuff…

    Always trust your home because that is exactly what it is!!!

  15. Ah! I see. Now I recall my dad telling me about a college buddy of his who made it HUGE after he bought some land in OC during the 70’s.

    Was that the last time we saw stagflation?

  16. Rates are also being FORCED down by the massive flight to quality, seeking Treasuries as a safe haven. This objective fact is undeniable.

    Remember Treasuries are AUCTIONED through bidding and people are bidding them sky high through the roof (which LOWERS their yield) as a hedge against the deflationary burst we are watching in slow motion.


  17. od, don’t be such a naive piece of sh%&!!! Grow up and get with it my freind!!!

  18. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  19. 25 hyper dilutive bank share offers in 60 days ! WOW !

    And who’s the Godfather that will stiff the racket for good. I like the number. It’s astounding. At least 25 hyper dilutive share offers from the banks in the next 2 months ! This is staggerring.

    It’s massively dilutive and absolutely depressing. And what do the damn shtbags do. They bid up the price of the junk. That’s where the short restrictions even on good honest non naked shorts, comes in. The SEC are a real bunch of sleezy bastards. Trying to pump temporarily the junk during the critical period and then dumping the crap on the morons. What a bunch of pukes and pimps. What a bunch of racketers and mobsters !

  20. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  21. So we are supposed to go short on WAMU and Wachovia. I would like to know when these two pieces of shit go bankrupt. Mr. Weiss is right so are you. But you know what, the shitbags coundn’t care less. They are convinced Adolf Hitler Paulson and all his Nazis have the situation under control. You can be right and lose your shirt with these godamn nazis.

  22. […] S&P Does Hatchet Job on Prime, Alt-A and Subprime RMBS […]

  23. […] one week after S&P placed over 1600 Alt-A RMBS on downgrade review (final downgrades likely within a few days), Moody’s and Fitch get into the act by actually […]

  24. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  25. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  26. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  27. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

  28. […] S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS […]

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