Underwriting the SubPrime Crisis

Foreclosures continue to tick higher, reaching all sorts of nasty levels in Q3, climbing to 20 year highs:

"The rate of homeowners going into foreclosure hit a record high in
the third quarter, while those late with their payments rose to the
highest level since 1986, according to mortgage lenders’ trade group,
which forecast that the meltdown in the mortgage and real estate
markets shaking the U.S. economy will continue to worsen over the next

The Mortgage Bankers Association reported that 0.78 percent
of mortgages entered the foreclosure process in the three months ended
Sept. 30. That figure is up from 0.65 percent in the second quarter -
the previous record high – and more than double the 0.32 percent rate a
year earlier. The homeowners entering foreclosure brought the
total percentage of loans in the foreclosure process to a record high
as well of 1.69 percent, or 768,000 homes.

The report also showed
that 5.59 percent of borrowers are now at least 30 days late making
their mortgage payments, which is just below the record high of 5.68
percent set in 1986. And 1.26 percent of the borrowers were 90-plus
days late, putting them at significant risk of going into foreclosure."

Hey, that’s good stuff. How did the simple process of securitization go so far awry? I’m not sure how, but at least we know who to thank for the too clever by half excesses of the past cycle, thanks to this nice table from this morning’s NYT on who was underwriting all of the sub-prime securitized products:




"The Wall Street banks that foresaw problems say they hedged their mortgage positions as part of their fiduciary duty to shareholders. Indeed, some other companies, particularly Citigroup, Merrill Lynch and UBS, apparently did not foresee the housing market collapse and lost billions of dollars, leading to forced resignations of their chief executives.

In any case, the bankers argue, buyers of such securities — institutional investors like pension funds, banks and hedge funds — are sophisticated and understand the risks.

Wall Street officials maintain that the system worked as it was supposed to. Underwriters, they say, did not pressure colleagues on trading desks or in research departments to promote securities blindly."

Nevertheless, the loans that many banks packaged are proving to be increasingly toxic. Almost a quarter of the subprime loans that were transformed into securities by Deutsche Bank, Barclays and Morgan Stanley last year are already in default, according to Bloomberg. About a fifth of the loans backing securities underwritten by Merrill Lynch are in trouble.



Foreclosures reach record high
Chris Isidore
CNNMoney.com, December 6 2007: 12:34 PM

Wary of Risk, Bankers Sold Shaky Mortgage Debt
NYT, December 6, 2007

Category: Credit, Derivatives, Finance

“High End” Inflation

Category: Economy, Employment, Finance, Inflation

NFP: Birth/Death Adjustments

One of the things we have harped on for quite a long time here at The Big Picture is the flawed BLS Birth Death Model (BDM). Since 2003, the B/D adjustment has been part and parcel to BLS’ Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment…Read More

Category: Data Analysis, Economy, Employment, Psychology

Cody and Jim Rogers on Fox Business

Category: Books, Economy, Federal Reserve, Inflation

Amazon’s Most Wished For, Most Gifted, and Best Selling Items

Category: Books, Consumer Spending, Film, Music


Congrats to my pal Paul the K on his new web TV gig with Yahoo:

Yahoo TechTicker To Go After CNBC Crowd: The show will be called TechTicker, and it launches
in January. The goal is to attract the CNBC crowd – people who want to be
immersed in finance news all day long.  The hosts include Henry Blodget (Silicon Alley Insider), Sarah Lacy (Business Week columnist) and
Paul Kedrosky, plus one additional person who
has yet to be named. The team will produce 10-20 original segments per week day,
which will be shown live on the site. When live content isn’t streaming, old
content will show on a loop.

Look out, Howard, they are coming after you!


via TechCrunch

Category: Financial Press, Video, Web/Tech

Inflation IN-Inflation

Category: Commodities, Inflation

Jobs Surge!

Category: Economy, Employment, Media

What is Temp Work Saying About GDP and NFP?

Category: Data Analysis, Economy, Employment

Here Comes Another Bubble

Hysterical . . .

via GMSV

Category: Valuation, Video, Web/Tech