Subprime Lending

Fitch Offers Foreclosure/Loss Severity Estimates for Subprime RMBS November 19, 2008

Fitch Ratings has revised its surveillance methodology for evaluating subprime residential mortgage-backed securities to reflect higher loss expectations on loans originated between 2005 and 2007. Fitch now expects more than half of the remaining loans in subprime RMBS from those years to go into foreclosure. Specifically, Fitch predicts that of the remaining loans in transactions from 2005, 2006 and 2007, the shares that will go into foreclosure are 49%, 60% and 52%, respectively. When loss severity is added to the equation, Fitch estimates that investors will lose 30% of the remaining principal balance on 2005 transactions, 39% on 2006 transactions and 34% on 2007 transactions.

HSBC Mortgage Corp. Shutting Wholesale, Third-Party Correspondent November 19, 2008

HSBC Mortgage Corp., Depew, N.Y., in an internal memo Tuesday said it is officially ceasing originations through its wholesale and third-party correspondent channels, and 325 of the corporation's 1,500 employees will lose their current jobs as a result. Mortgages in these categories registered as of Nov. 18 will be processed and floating wholesale and correspondent loans registered on that date must be locked by Dec. 2, according to the memo. Mortgages from these channels will have until Jan. 20, 2009 to fund and the corporation will not fund any wholesale or correspondent loans after Jan. 21, 2009. One hundred account executives nationwide and 225 mortgage lending specialists and support personnel in Depew will face cuts, a spokeswoman said. However, the majority of the 1,100 positions in Depew remain intact and an undetermined number of internal placements may be made. Affected employees have received 60 days notice and are to be individually informed about severance and benefits. The move comes a little more than a year after the corporation's European-owned corporate parent shut down the Decision One subprime wholesale unit operated by its HSBC Finance arm and said it would be working to refocus its mortgage business on the direct-to-consumer retail origination channel.

'Five Timers' Standing in Way of Recovery? November 17, 2008

There will not be a recovery in the home market until all the "five timers" are out of their homes, said Bob Simpson, the president of IMARC, a Newport Beach, Calif.-based mortgage fraud investigations firm. The fact that those who owe five times more than what they make are still in their homes means the bottom has not been reached, he said, speaking at NAMB/West in Las Vegas after having made similar comments at the SourceMedia Mortgage Fraud Conference. The "five timers" need to turn in their house keys and move into something they can afford. "You're not qualified" is a phrase mortgage originators have to start using again, Mr. Simpson said. At NAMB/West, he made an analogy to the markers casinos give to high rollers. In the lending industry, those markers have now gone bad. The origination process was not about cost but about monthly debt service; originators sold payments. Compounding the problem, Mr. Simpson said, is lenders no longer required borrowers "have skin in the game" in the form of a downpayment. He added that he was not a fan of downpayment assistance programs. There need to be barriers to homeownership and the borrower's ability to save is important, Mr. Simpson said.

Applications Increase Slightly November 5, 2008

The Market Composite Index, an overall measure of mortgage applications, decreased 20.3% on a seasonally adjusted basis from 476.7 to 379.9 during the week ended Oct. 31, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index decreased from 303.1 to 260.9 on a seasonally adjusted basis, while the Refinance Index decreased from 1489.4 to 1075.4. Refinancings represented 42.9% of total applications, down from 46.9% the previous week, while adjustable-rate mortgages accounted for 2.5%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased 21 basis points from 6.26% to 6.47%, and points (including the origination fee) increased from 1.10 to 1.19 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Applications Increase Slightly October 29, 2008

The Market Composite Index, an overall measure of mortgage applications, increased 16.8% on a seasonally adjusted basis from 408.1 to 476.7 during the week ended Oct. 24, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 279.3 to 303.1 on a seasonally adjusted basis, while the Refinance Index increased from 1158.8 to 1489.4. Refinancings represented 46.9% of total applications, up from 42.6% the previous week, while adjustable-rate mortgages accounted for 1.9%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased 2 basis points from 6.28% to 6.26%, and points (including the origination fee) increased from 1.09 to 1.10 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

And Subprime Not Sole Cause of Crisis October 28, 2008

While some argue that the uncertainty bedeviling investors and institutions that own mortgages has its roots in the subprime and alternative-A markets, "there are numerous factors to review and to understand before coming to any conclusions," Anthony Ryan, the Treasury's acting undersecretary for domestic finance, told the Securities Industry and Financial Markets Association's annual conference in New York. "Credit as a whole -- not just in the housing sector -- has been plentiful over the past decade," he said. "Today, we are experiencing the repercussions of this unbridled expansion and access to credit," said Mr. Ryan. "We needed to strike a balance between strong market discipline and regulatory oversight and we have not."

MIAC Selling $536M Alt-A Whole Loan Portfolio October 16, 2008

Mortgage Industry Advisory Corp. is auctioning off a $536 million portfolio of performing alt-A whole loans on behalf of what it calls an "east coast money center bank." The New York-based advisory firm declined to name the seller. "It may come as a surprise to some people but the portfolio is totally performing," said Dan Thomas, managing director of assets sales for MIAC. The servicing rights are included along with the whole loans. According to the offering circular, the portfolio has an average loan-to-value ratio of almost 78%. The average FICO score is 707 and the coupon is just over 7%. The average loan size is $376,075. Over the past year the alt-A market has suffered higher delinquencies but not in the range of subprime lates, which are north of 30%, according to figures compiled by the Quarterly Data Report. Alt-A loans are "nonprime" in nature but have higher FICO scores than A- to D loans. In years past some lenders considered 'stated-income' loans to be in the category of alt-A. The bid deadline is Friday, October 24.

Citigroup Has $27.9B in Subprime CDO Exposure October 16, 2008

Citigroup, which has suffered billions in losses from it's A- to D securitization business, still has $27.9 billion in subprime CDO exposure on its books, though almost $10 billion of that is hedged. According to the company's third quarter earnings statement, the bulk of its exposure is in what it calls "older vintage, high grade" asset-backed security CDO (collateralized debt obligations). A CDO is a security made up of other securities, in Citigroup's case, subprime MBS or ABS. But Citigroup - which recently slashed its wholesale mortgage network by 90% - also has other residential-related problems. In the third quarter it took a $1.2 billion writedown on alt-A mortgages (net of hedges) and suffered a $192 million loss on a hedge tied to its mortgage servicing portfolio. CitiMortgage, at June 30, ranked fourth among all residential servicers with an $816 billion portfolio, according to the Quarterly Data Report. In the third quarter Citigroup lost $2.8 billion overall. It entered the subprime business earlier in the decade when it bought Associates First Capital Corp. of Texas.

Applications Increase Slightly October 15, 2008

The Market Composite Index, an overall measure of mortgage applications, increased from 465.5 to 489.3 on a seasonally adjusted basis during the week ended Oct. 10, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index decreased from 314.5 to 313.5 on a seasonally adjusted basis, while the Refinance Index increased from 1345.8 to 1514.2. Refinancings represented 46.4% of total applications, up from 43.4% the previous week, while adjustable-rate mortgages accounted for 2.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased 48 basis points from 5.99% to 6.47%, and points (including the origination fee) increased from 1.09 to 1.14 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

JPM Chase's HELOC Charge-offs Triple October 15, 2008

JPMorgan Chase & Co. booked $663 million in charge-offs on its home equity loan portfolio in the third quarter, a stunning increase of 342% from the year ago quarter. Until earlier this year, JPM's mortgage division heavily marketed its HELOC product, particularly through loan brokers and correspondents. JPM also was one of many lenders that played in the "80-10-10" market where HELOCs were originated along with firsts so customers could avoid paying private mortgage insurance. With home prices suffering, those loans have since gone out of favor. (HELOC delinquencies are on the rise throughout the lending and servicing industry.) JPM's mortgage unit also suffered $273 million in subprime charge-offs compared to $40 million a year ago. The bank holds $94.8 billion in HELOCs, up 3% from the year ago. It funded $2.6 billion in HELOCs during the quarter, a 77% decline from 3Q 2007. Overall, JPM, as a company, earned $527 million compared to $3.4 billion a year ago. It is one of nine banks that the Treasury has slated to partially "nationalize" by purchasing preferred shares in the firm.

Subprime Lending

Related stories