In the law suit filed by Bank of America against First American Title and its sister firm United General Title Insurance this month, BofA is looking to be paid its charge-off amount for title insurance issues. But rather than pay the claims on the 4,500 properties claimed by BofA, First American and United General denied 2,200 alleged claims and have not acted on another 2,300 claims.
Meanwhile, First American Corporation announced its desire to separate its two operating divisions, the Financial Services Company and the Information Solutions Company, into two separate publically traded entities. The Financial Services Company would hold the title insurance companies (with all the liability) and the Information Solutions Company would have the services like CoreLogic, without the title insurance liability. HUMMM?
Saturday, March 20, 2010
Monday, March 15, 2010
Moody's Fires A Warning Shot at the Fed.
From the March 15, 2010 article in the New York Times by David Jolly[http://www.nytimes.com/2010/03/16/business/global/16rating.html?hp] Moody's was reported as saying that "Major Western economies have moved “substantially” closer to losing their top-notch credit ratings, with the United States and Britain under the most pressure . . ." Even better is their comment that “their ‘distance-to-downgrade’ has in all cases substantially diminished.”
For those that can read between the lines, Moody's statement of “Preserving debt affordability (the ratio of interest payments to government revenue) at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion” looks like a veiled threat against Congress, given that the Obama administration is looking to increase federal debt to 64% of G.D.P. Looks to me that they are saying we are going to have a significant tax increase to cover federal debt service.
As reported, U.S. debt currently remains affordable, as the debt affordability ratio fell to 8.7 percent in the current year, after peaking at 10 percent two years ago. If that trend were to reverse, which it would based on the desire to increase federal debt, the Moody’s analysts said, “there would at some point be downward pressure on the Aaa rating of the federal government.”
And what exactly is the testing of "social cohesion." Is Moody's worried about the outbreak of anarchy if the U.S. Governmnet raises taxes and cuts more social services (the fiscal adjustments) to cover its debt service to avoid a downgrade? I think they are.
I guess if the government wants to keep their ratings up (and limit the cost of raising more capital in the world market) Congress should not investigate how Moody's (or S&P) concocted AAA ratings for sub-prime mortgage securitization structures where the loans underlying the securities were comprised of such strong products like 2/28 interest only teaser rates, negative amortization and "pick-a-payment" loans. Clearly, Moody's thought that those securities were well worth their AAA rating. I wonder about the debt affordability factor that Moody's used in their analysis of those structures.
For those that can read between the lines, Moody's statement of “Preserving debt affordability (the ratio of interest payments to government revenue) at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion” looks like a veiled threat against Congress, given that the Obama administration is looking to increase federal debt to 64% of G.D.P. Looks to me that they are saying we are going to have a significant tax increase to cover federal debt service.
As reported, U.S. debt currently remains affordable, as the debt affordability ratio fell to 8.7 percent in the current year, after peaking at 10 percent two years ago. If that trend were to reverse, which it would based on the desire to increase federal debt, the Moody’s analysts said, “there would at some point be downward pressure on the Aaa rating of the federal government.”
And what exactly is the testing of "social cohesion." Is Moody's worried about the outbreak of anarchy if the U.S. Governmnet raises taxes and cuts more social services (the fiscal adjustments) to cover its debt service to avoid a downgrade? I think they are.
I guess if the government wants to keep their ratings up (and limit the cost of raising more capital in the world market) Congress should not investigate how Moody's (or S&P) concocted AAA ratings for sub-prime mortgage securitization structures where the loans underlying the securities were comprised of such strong products like 2/28 interest only teaser rates, negative amortization and "pick-a-payment" loans. Clearly, Moody's thought that those securities were well worth their AAA rating. I wonder about the debt affordability factor that Moody's used in their analysis of those structures.
Friday, February 12, 2010
FANNIE/FREDDIE PLAYING THE FASB 157 CARD
From February 11 Wall Street Journal Article by Nick Timiraos, Fannie and Freddie are stepping up their efforts to purchase some $200 billion of delinquent mortgage loans in their securitization structures. Rather than waiting the 24 month period on a delinquent loan, they mortgage-finance giants are looking to buy those loans out after only going delinquent 120 days.
Good news for investors, as Freddie said that it would buy "substantially all" of its 120 day delinquent portfolio, to the tune of about $70 billion, in one single shot. Fannie is looking at a $127 billion portfolio of delinquent loans, which is claims will be repurchasing over a period of time.
Remember, the federal government took over these two organizations a year and a half ago, and providing over $110 billion from the Treasury. In December, the government agreed that it would cover an unlimited position of losses over the next three yeears, which means that the organizations can't lose. Plus, they can hold the assets and mark-to-market under FASB 157, giving them stronger balance sheet position.
Good news for investors, as Freddie said that it would buy "substantially all" of its 120 day delinquent portfolio, to the tune of about $70 billion, in one single shot. Fannie is looking at a $127 billion portfolio of delinquent loans, which is claims will be repurchasing over a period of time.
Remember, the federal government took over these two organizations a year and a half ago, and providing over $110 billion from the Treasury. In December, the government agreed that it would cover an unlimited position of losses over the next three yeears, which means that the organizations can't lose. Plus, they can hold the assets and mark-to-market under FASB 157, giving them stronger balance sheet position.
Saturday, January 30, 2010
Repurchases - Fannie/Freddie Start Chasing the Money
From the January 30, 2010 Wall Street Journal article by Nick Timiroas, Fannie Mae and Freddie Mac are starting the process of chasing down mortgage originators (or their successors) for repurchase obligations. With about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have started to sift through mortgage files for proof of underwriting flaws. The default is usually the first sign of a possible breach of a representation or warranty in the mortgage loan sale document.
The result so far, as reported by Mr. Timiroas, is that Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Mr. Timiroas reports that Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009. This corresponds to the fact that the loans would probably have a origination dates in 2006 and 2007, where the quality of the underwriting and the type of loans originated (i.e. stated income, interest only 2/28 and 3/27) would give rise to significant defaults.
While this report was for the Fannie/Freddie portfolio, the non-agency paper would have a corresponding need for increased scrutiny of its defaulted portfolio. The issue is whether the private investors of RMBS have the same desire to chase after money that belongs to them. SASA can provide that support.
The result so far, as reported by Mr. Timiroas, is that Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Mr. Timiroas reports that Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009. This corresponds to the fact that the loans would probably have a origination dates in 2006 and 2007, where the quality of the underwriting and the type of loans originated (i.e. stated income, interest only 2/28 and 3/27) would give rise to significant defaults.
While this report was for the Fannie/Freddie portfolio, the non-agency paper would have a corresponding need for increased scrutiny of its defaulted portfolio. The issue is whether the private investors of RMBS have the same desire to chase after money that belongs to them. SASA can provide that support.
Monday, November 9, 2009
SEC Grows Its Risk Oversight Division
The Securities and Exchange Commission announced on Thursday (10/05/09) the appointment of a new senior policy maker and two counsels to the new Division of Risk, Strategy and Financial Innovation. The senior policy advisor to the division will be Richard Bookstaber, a published author on risk management and finance, who has a Ph.D. in Economics from MIT and has previously held senior positions in risk management at Salomon Brothers and Morgan Stanley. Joining him in counsel roles are Adam Glass, formerly head of structured finance at the law firm of Linklater LLP, and Bruce Kraus from Willkie Farr & Gallagher LLP.
The division was established to perform all of the functions previously performed by Office of Economic Analysis and the Office of Risk Assessment, along with other functions to “provide the Commission with sophisticated analysis that integrates economic, financial and legal disciplines. The division's responsibilities cover three broad areas: risk and economic analysis; strategic research; and financial innovation.” This means that the division will be responsible for: (1) providing strategic and long-term analysis; (2) identifying new developments and trends in financial markets and systemic risk; (3) making recommendations as to how these new developments and trends affect the Commission's regulatory activities; (4) conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices; and (5) providing training on new developments and trends and other matters.
The Risk, Strategy and Financial Innovation division is currently headed up by director Henry Hu, a University of Texas School of Law Professor who was appointed in September of this year. Professor Hu holds the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas School of Law and has written on bank, derivatives, hedge fund, and mutual fund regulation, corporate governance, global competitiveness of U.S. derivatives markets, model risk, risk management, and swaps and other financial innovations. More recently, Professor Hu was the lead author on a series of pioneering articles on the "decoupling" of debt and equity, its impact on corporate and debt governance and world systemic risk, and possible disclosure and substantive responses, as stated in the SEC press release of Mr. Hu’s appointment.
The division was established to perform all of the functions previously performed by Office of Economic Analysis and the Office of Risk Assessment, along with other functions to “provide the Commission with sophisticated analysis that integrates economic, financial and legal disciplines. The division's responsibilities cover three broad areas: risk and economic analysis; strategic research; and financial innovation.” This means that the division will be responsible for: (1) providing strategic and long-term analysis; (2) identifying new developments and trends in financial markets and systemic risk; (3) making recommendations as to how these new developments and trends affect the Commission's regulatory activities; (4) conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices; and (5) providing training on new developments and trends and other matters.
The Risk, Strategy and Financial Innovation division is currently headed up by director Henry Hu, a University of Texas School of Law Professor who was appointed in September of this year. Professor Hu holds the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas School of Law and has written on bank, derivatives, hedge fund, and mutual fund regulation, corporate governance, global competitiveness of U.S. derivatives markets, model risk, risk management, and swaps and other financial innovations. More recently, Professor Hu was the lead author on a series of pioneering articles on the "decoupling" of debt and equity, its impact on corporate and debt governance and world systemic risk, and possible disclosure and substantive responses, as stated in the SEC press release of Mr. Hu’s appointment.
Friday, November 6, 2009
New Fannie Mae Program May Have Gotten It Right - The D4L Program
Under a program announced on Thursday (10/5/09) by Fannie Mae called Deed for Lease, qualified borrowers would be able to remain in their residences by signing a lease voluntarily transferring the property deed back to the lender. The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.
To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.
Naturally, there is a small catch - Pets. “Certain pets may pose a liability threat to the tenant and the landlord,” Fannie Mae said. “For this reason we may require tenants with pets to secure renters insurance, which includes liability coverage for pets and names Fannie Mae as an additional insured.”
Does that include goldfish?
To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.
Naturally, there is a small catch - Pets. “Certain pets may pose a liability threat to the tenant and the landlord,” Fannie Mae said. “For this reason we may require tenants with pets to secure renters insurance, which includes liability coverage for pets and names Fannie Mae as an additional insured.”
Does that include goldfish?
Wednesday, November 4, 2009
TOO LITTLE, TOO LATE
From HousingWire.com - All that needs to be said is - "Hey the horse is already out of the barn. Now all they are trying to save is the hay." With a 7.5% credit enhancement for prime securitizations, it should be interesting to see what they will be requiring for others.
S&P Makes High Ratings ‘More Difficult’ to Receive
By DIANA GOLOBAY
November 4, 2009 10:58 AM CST
Recent changes among ratings criteria at Standard & Poor’s represent “significant” repercussions for collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBS), according to the ratings agency.
The changes will make high ratings on securities in sectors troubled by poor credit performance “more difficult” to receive, S&P said. The changes aim to enhance the comparability of ratings on these securities with ratings on credits in other sectors.
“More than any other kind of institutional change, changes to criteria directly affect our credit analysis and our ratings that result from that analysis,” S&P said. “Indeed, criteria is the exact spot where the rubber meets the road for a rating agency. By reading our criteria, investors can gain a deep understanding of the nature and levels of risk expressed in our rating opinions.”
The ratings agency recently adopted stress scenarios for use as a tool to calibrate criteria, meaning assigned ratings ought to be able to withstand higher levels of economic stress without defaulting. The recent weak performance of CDOs and RMBS prompted S&P to revise its criteria in order to improve rating performance and comparability.
The new US RMBS criteria establish a 7.5% credit enhancement level for a security backed by an “archetypical” prime mortgage pool in the triple-A rating category, a “substantially higher” level than previously established. The ratings agency said some RMBS risk features like low borrower credit scores or slim home equity not accounted for in the “archetypical” scenario could trigger adjustment mechanisms in the criteria to allow for higher credit enhancement levels.
S&P indicated the implementation of the new RMBS criteria resulted in few downgrades, since many outstanding RMBS deals already faced downgrades over poor performance.
The ratings agency also updated the corporate CDO criteria to add both qualitative and quantitative tests to a default simulation model already in place. The model addresses the loans or bonds backing a CDO from a mathematical framework, calculating probably behaviors and statistics. The tests added to the model addresses the “model risk” inherent in a probability-based model, S&P said.
“In addition, we recalibrated the simulation model to achieve stresses based on Depression-era experience,” S&P added. “The calibration method that we used makes it easier and more transparent for investors to understand our ratings and to relate them to their investment objectives.”
Write to Diana Golobay.
S&P Makes High Ratings ‘More Difficult’ to Receive
By DIANA GOLOBAY
November 4, 2009 10:58 AM CST
Recent changes among ratings criteria at Standard & Poor’s represent “significant” repercussions for collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBS), according to the ratings agency.
The changes will make high ratings on securities in sectors troubled by poor credit performance “more difficult” to receive, S&P said. The changes aim to enhance the comparability of ratings on these securities with ratings on credits in other sectors.
“More than any other kind of institutional change, changes to criteria directly affect our credit analysis and our ratings that result from that analysis,” S&P said. “Indeed, criteria is the exact spot where the rubber meets the road for a rating agency. By reading our criteria, investors can gain a deep understanding of the nature and levels of risk expressed in our rating opinions.”
The ratings agency recently adopted stress scenarios for use as a tool to calibrate criteria, meaning assigned ratings ought to be able to withstand higher levels of economic stress without defaulting. The recent weak performance of CDOs and RMBS prompted S&P to revise its criteria in order to improve rating performance and comparability.
The new US RMBS criteria establish a 7.5% credit enhancement level for a security backed by an “archetypical” prime mortgage pool in the triple-A rating category, a “substantially higher” level than previously established. The ratings agency said some RMBS risk features like low borrower credit scores or slim home equity not accounted for in the “archetypical” scenario could trigger adjustment mechanisms in the criteria to allow for higher credit enhancement levels.
S&P indicated the implementation of the new RMBS criteria resulted in few downgrades, since many outstanding RMBS deals already faced downgrades over poor performance.
The ratings agency also updated the corporate CDO criteria to add both qualitative and quantitative tests to a default simulation model already in place. The model addresses the loans or bonds backing a CDO from a mathematical framework, calculating probably behaviors and statistics. The tests added to the model addresses the “model risk” inherent in a probability-based model, S&P said.
“In addition, we recalibrated the simulation model to achieve stresses based on Depression-era experience,” S&P added. “The calibration method that we used makes it easier and more transparent for investors to understand our ratings and to relate them to their investment objectives.”
Write to Diana Golobay.
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