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mortgage321321
754 Posts |
 Posted - 08/28/2007 : 10:41:46 PM
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The analysis looks at both credit standards and current interest rates on alternative loans, and concludes that refinancing into a new subprime loan or, for those borrowers whose credit profile has improved since loan origination, a new Alt-A loan, is essentially not an option. The interest rates on new subprime and Alt-A, given the current environment, are simply too high to offer any improvement in the monthly payment.
Therefore, the report concludes that FHA and Fannie Mae's "Expanded Approval" program (EA, its existing program for "near prime") are the only realistic options, given pricing structures. BoA estimates that approximately 18% of outstanding subprime ARM borrowers could qualify for an FHA refi (on both credit guidelines and rate reduction), and approximately 36% could qualify for Fannie Mae's EA. (That's best understood as 36% qualifying for either FHA or EA, not a total of 54%.) The larger bucket of loans qualifying for EA is mostly a matter of the larger GSE maximum loan amount compared to the FHA maximum, as well as a slice of the highest-credit class for which EA, at least in theory, offers 100% financing in contrast to FHA's 97% maximum.
http://calculatedrisk.blogspot.com/2007/08/subprime-borrower-refi-options.html
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paultaylor
361 Posts |
Posted - 08/28/2007 : 10:49:13 PM
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| That's where they want it to go, and that's where it's going to go. |
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mortgage321321
754 Posts |
Posted - 08/28/2007 : 10:53:48 PM
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| And what about Calif.-are we going to sink with all of our Jumbos? |
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rad
1404 Posts |
Posted - 08/28/2007 : 10:54:17 PM
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Interesting blog and some interesting comments in response to that article, as follows:
FHA is the Govt's subprime program. One thing that HUD did do right is to avoid FHA stated income.
Paul | Homepage | 08.28.07 - 10:01 am | #
Where are these borrowers going to get the money to be right side up on these loans? You just know theyu are underwater now.
JoeMortgage | 08.28.07 - 10:02 am | #
Here's a relevant Bllomberg story: ABX Indexes Decline on Higher Subprime Mortgage Delinquencies
The paragraph I found most interesting was this:
Borrowers struggling to keep up with payments on adjustable- rate loans that are rising for the first time may be contributing to delinquencies and defaults, Parkus and Shen wrote. The loans in the 06-1 index are prepaying at a rate that would eliminate 45 percent to 55 percent of balances in a year, below the typical pace for their ages, when so-called teaser-rate periods are beginning to end, the analysts said.
This something I've found rather astounding, the huge percentage of these loans that would prepay per year. In July, the rate fell to 45-55%!
Clearly these people were on a merry-go-round that slowed and is about to slow even more.
Bob_in_MA | 08.28.07 - 10:05 am | #
JoeMortgage, what this is saying is that 36% of these borrowers, by BoA's estimate, are at 97-100% current LTV or less. They excluded any loan with an estimated current LTV over that.
And they did not look solely at current estimated LTV. They looked at DTIs, doc type, occupancy, etc.
Tanta | 08.28.07 - 10:06 am | #
Bob, that's an important point I've been trying to make for a long time. These securities were originally structured assuming prepayment rates that high. Slowing CPR is playing merry hell with the value of some of these deals beyond the question of increased credit losses. The durations of these bonds are extending at a time when it isn't much fun, which is the usual horror of duration risk.
Tanta | 08.28.07 - 10:10 am | #
what does 'the immediate future' mean?
bacon dreamz | 08.28.07 - 10:10 am | #
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The real problem is Falling Home Prices and not so much the refi options, IMO.
If prices fall 20-30% from the peak what options are available that are better than Cramer's "Walk Away?"
It is the stupid lenders that need help and not so much the homeowners. No?
With supply getting worse and worse why wouldn’t prices fall to pre-2002 levels in most areas?
Jas
Jas Jain | 08.28.07 - 10:15 am | #
Do the lenders reappraise before refinancing?
REBear | 08.28.07 - 10:18 am | #
well the RAs in part assume fast speeds to avoid giving too much credit to excess spread...that's why they mostly just changed the loading.
bacon dreamz | 08.28.07 - 10:19 am | #
Tanta,
Yes, I remember you explaining this is what fueled the over-collateralization.
One small point, you note, "...the refi rate for these borrowers, at best, is enough to keep them at pre-reset payment levels."
At best is right, because many were paying teaser rate levels. One unanswered question is, what is the average rate these people were paying before reset? With some paying as little as 1-2% for the first month or two, and some 4-5% (I believe) for the first year. It isn't like resets of 2-year ARMs 10 years ago when you went from short-term rates to long term rates.
The one thing that seems really clear to me, is nothing is remotely clear about the current situation. The sanguine commentators out there really have no more idea than any of us how this will play out.
Bob_in_MA | 08.28.07 - 10:21 am | #
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A request to CR
Hello CR,
Could you post historical data for Consumer Confidence with recessions?
I think that Ken Goldstein was lying on CNBC when he said that with CC above 100 we are nowhere near recession. If I recall correctly, the CC is above 100 just few months prior to the beginning of recessions and then falls of the cliff. Goldstein said that CC has to be< |
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