There Always Was A Subprime Market
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There Always Was A Subprime Market

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There Always Was A Subprime Market There Always Was A Subprime Market Presentation Transcript

  • THERE ALWAYS WAS A SUBPRIME MARKET MORTGAGE FINANCE UPDATE NATIONAL AUCTIONEERS ASSOCIATION Jillayne Schlicke Dec 1, 2008
    • Unfortunately, banks started doing this without knowing how to service the loans.
    • It takes time to work out non-performing loans.
    • Consumer Finance Companies are really good at this. Banks are not.
    There always was a subprime market
    • Consumer
    CDOs |||||||| Federal Reserve FDIC 54 b US Taxpayer US Treasury $ Ratings Agencies AAA AA A RMBS Mortgage Broker Mortgage Banker Consumer Finance Co. Wrong model to rate the single As Copyright Dec 2008 Jillayne Schlicke Do Not Duplicate Rise and Fall of Securitized Lending
  • Why The TARP Plan Failed
    • Re-underwrite
    • Modify
    • Re-package
    • Re-sell
    • Money will return to the U.S. Treasury.
    • Assets
    • Loans
    • good
    • bad
    Liabilities Deposits Banks U.S. Treasury Involuntary direct capital injections
  • Feedback Loop Higher Rates Rising Bank Losses Lower Home Values Rising Inventory Fewer Buyers Tighter UW Guidelines Rising SS & F Lower Home Values Rising Foreclosures Time
  • Government Intervention
    • Gov will always try to intervene Some argue that this is necessary
    • Gov intervention will slow the downside and ultimately slow the recovery
    • Recent government intervention
  • Recent Gov Intervention
    • Loan modifications
      • Voluntary participation in FDIC’s model
      • Fannie Freddie loan mods
    • FHA Secure, H4H
    • Mandatory foreclosure moratoriums (state level)
      • Note: some banks are voluntarily doing this
    • CitiGroup bailout
    • Fed will purchase 600B in F&F’s MBS
    • Let’s now take a look at government regulation…
  • Tangled Web of Regulation Tttttttt Source: dfi.wa.gov
  • Top Ten Ways to Tell If Your Bank is Going Under
    • Paulson appears on Face the Nation and says, “Our banking system is safe and sound.”
    • CD rate offered is way, way higher than any other bank.
    • The change counting machine disappears and is replaced with a slot machine.
    • Instead of coffee and donuts, the bank is giving away Ford, Chrysler, or GM cars.
    • No pens and no withdrawal slips, only FDIC I.O.U.s
    • Sounds of loud sobbing can be heard coming from the vault.
    • Large pizza delivery truck parked outside on a Friday evening.
    • Branch manager has scrawled "REDRUM" on her glass wall with her lipstick.
    • There is a vacant lot where your branch used to be.
    • and….
    • “ There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac used up $8 billion. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of it? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back. What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.” Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
  • t Source: Bloomberg
  • Trends for the rest of this month
    • Car Companies Get Bailed Out
    • Lehman Hedge Funds will evaporate
    • Billions of losses at Goldman Sachs
    • Commercial and Development loans will freeze
    • More bank failures
    • Pressure to use TARP funds to lower rates
    • Details on President Obama’s stimulus plan
      • Will help commercial employment
  • Trends for 2009
    • Turnover of existing inventory will slow
    • Loan modification default rates to rise (currently 50% of loan mods are re-defaulting)
    • Banking system will continue towards nationalization (watch for an FDIC bailout)
    • Credit Unions will survive
    • Consumer Finance Companies will survive
    • Watch for problems at FHA in 2009, 2010
    • Too soon to call the bottom
    • Alt A & Option ARM Resets….
  • Option ARM Non-Bomb? 11 th District COFI 60% of ARMS tied to LIBOR 25% tied to various treasuries 15% tied to the COFI (many in Calif) Many option ARM holders were making the min payment or paying interest only. When the loans recast , the borrower will begin making the amortized payment, which could have a much larger impact on the monthly payment than the rate reset .
  • t
    • Good news for auctioneers
    • Individual foreclosure auctions
    • Large, bulk investor purchase auctions
    • FSBO auctions
    • REO auctions v. individual resales
    There always will be a subprime market
  • THERE ALWAYS WAS A SUBPRIME MARKET MORTGAGE FINANCE UPDATE NATIONAL AUCTIONEERS ASSOCIATION CEFORWARD.COM MORTGAGEFIDUCIARIES.COM RAINCITYGUIDE.COM Jillayne Schlicke Dec 1, 2008