Toxie the Toxic Asset: one for the finance nerds

[RandomGuy]

You may have heard about "toxic assets" in the news regarding the Great Credit Crunch and Financial Meltdown.
The folks at NPR's Planet Money pooled $1000 and bought one of those toxic assets, i.e. a residential mortgage backed security/bond, to see for themselves what the deal was.
Listeners named it "Toxie", and they have been tracking its progress over the last few months.

Long story short: It is in a coma, and likely to die completely in a few months leaving a 50% loss to the reporters' investment.


Gotta love NPR for stuff like this. The full details and series of reports can be seen here:
http://www.npr.org/templates/story/story.php?storyId=124587240

Here is a map of where those mortgages are:
http://media.npr.org/assets/blogs/planetmoney/images/2010/05/toxiemap.jpg

[CosmicCowboy]

Get ready for a lot more:

http://finance.yahoo.com/news/Why-1In10-Current-Borrowers-siliconalley-2544669711.html;_ylt=AouDyeA4.ndJZGw.4UtOMUa7YWsA; _ylu=X3oDMTE1b2FsZ25iBHBvcwM2BHNlYwN0b3BTdG9yaWVzB HNsawN3aHkxaW4xMGJvcnI-?x=0&sec=topStories&pos=4&asset=&ccode=

Why 1-In-10 Current Borrowers Will Lose Their Home To The Bank

Michael David White, On Thursday May 20, 2010, 8:11 am EDT
New Observations is forecasting that a minimum of one in ten homes with a mortgage today will be lost to foreclosure in the next two years and that this loss represents a staggering five-million-unit addition to inventory-for-sale.

A record high 4.63% of mortgages were in foreclosure at the end of March The Mortgage Bankers Association reported Wednesday. Much worse, a mammoth 9.54% of mortgages are 90-days or more past due.
Given cure rates are slim-to-nothing-at-all beyond a 60-day delinquency, in practical terms, all of these seriously-delinquent homes will be lost through a sheriff’s auction, a short sale, a deed-in-lieu passing title from borrower to bank, or some other variant of distressed sale. Amherst Securities Group in a Sept. 2009 report said of the cure rate: “The cure rate on 60+ loans has decreased from 66% in early 2005 to 5% in Q2 2009.”
What is obvious and apparent from the cure-rate chart (see above-click for a clear view) is that borrowers who miss a payment are giving up quickly. After two payments are missed, the mortgage is a goner. It’s a new phenomena and adds a serious risk of falling prices for those who currently own homes.
If 50 million homes carry a mortgage, and with 10 percent lost to the bank in the next two years, five million units will be added to the current for-sale inventory. The five million bank-repo homes works out to about 10 months of sales at an average rate. Amherst estimated 7 million liquidations to the bank, but it was unclear over what period of time. The numbers will have even a more exaggerated impact if mortgage-payment performance continues to fall.
Current inventory is at eight months. The recent inventory high was 11 months in April 2008. Our figures already show current supply for-sale at 3.6 million units – which we have estimated is excessive by over 900,000 units (see chart “Units For Sale”-click for a clear view). In an average month 500,000 existing homes sell.
In another derogatory sign, purchase applications fell 27 percent to their lowest point since May 1997. A government-paid down-payment program ended April 30th.
The guesstimate that one-in-ten mortgage borrowers will lose their home is not a wild proclamation. It’s basic math based on the cure rate. What is wild is considering what will happen to real estate prices should mortgage failure gain greater momentum. Serious delinquencies are 30% greater today than a year ago.
A crash has the same irrational exuberance as a mania, except that greed is liberating and fear is terrifying. We have already lost 30 percent of house prices nationwide. There is simply no question that a radical loss in value may still lie ahead. Mortgage performance has gone down hill, and only a strong employment recovery can change the math.

[RandomGuy]

. Amherst Securities Group in a Sept. 2009 report said of the cure rate: “The cure rate on 60+ loans has decreased from 66% in early 2005 to 5% in Q2 2009.”


:wow

Interesting. After watching a lot of large corporations simply walk away from bad investments, and seeing that a lot of homes are worth less than the mortgage, a lot of people are concluding that it is better to simply walk away themselves.

Adding to this is simply the fact that a lot of people have lost jobs, and that first wave of mortgage distress is reaching the books now adding to the pile of bad loans created by shitty lending practices during the last part of the most recent bubble.

On another note:

A lot of people are expecting the Commercial Mortgage Backed Securities (bonds backed by commerical real estate, such as office buildings and industrial sites) to be the Next Shoe, but the data I have seen suggests the scope and scale of that will be relatively negligble, unless something truly untowards happens.

[Duff McCartney]

I (HEART) capitalism.

[boutons_deux]

There is big increase in distressed/foreclosed prime rate mortgages, people with good credit, but no jobs. About 1 in 10 mortgages are at least one month behind

The backlog of homes for sale is now about 9 years.

The Banksters Great Depression is over ... for the banksters.

[TDMVPDPOY]

you do know most of that shit about foreclosures are never reported in the news, fuck them and the realtors who pay money to the publishers not to publish negative shit about their industry to keep the price stable or increasing it....

this is what happens when you have fkn low interest rates and easy credit lending and stupid housing grants sucking in the young ppl who dont know when rates start to climb back up to the norm is when they start to struggle to meet payments

[Fat Bones]

Sounds like a good time buy is just around the corner.

[Das Texan]

I should let my house get foreclosed on and then buy it back for pennies.

[Fat Bones]

Brilliant. A capitol idea.

[RandomGuy]

you do know most of that shit about foreclosures are never reported in the news, fuck them and the realtors who pay money to the publishers not to publish negative shit about their industry to keep the price stable or increasing it....

this is what happens when you have fkn low interest rates and easy credit lending and stupid housing grants sucking in the young ppl who dont know when rates start to climb back up to the norm is when they start to struggle to meet payments

Google "mortgage crisis explained by stick figures". It is funny/sad reading.

[RandomGuy]

I should let my house get foreclosed on and then buy it back for pennies.

Not as impossible as you might think. A good shell corporation with some willing co-conspirators can do wonders.

Quite possibly illegal and certainly unethical, but possible.

[tlongII]

Good thing my mortgage is < $70K now. I don't see how people can buy a home these days.