ABX Stabilizes / MTG Insurers Fall Again
A: Quick checkup into creditville; a new town that is not such a great place to call home. The ABX Indexes seemed to have stabilized a bit after plunging since Oct. 11th; not such a great sign after the steep selloff as some sort of a rebound would have been nice to see. Meanwhile, the mortgage insurance companies continue their slide as PMI, MTG, & RDN plunge over 30% in the past 5 days. I'm still waiting for a clear indication of stability or a rebound in these two markets to quell fears that round two of the credit squeeze is near.
A quick description of the mortgage insurers I noted above.
PMI Group (NYSE: PMI; down 7.15% right now) - The PMI Group, Inc., through its subsidiaries, provides credit enhancement products that promote homeownership. It operates in four segments: U.S. Mortgage Insurance Operations, International Operations, Financial Guaranty, and Other. The U.S. Mortgage Insurance Operations segment provides residential mortgage insurance and structured finance products to mortgage lenders, savings institutions, commercial banks, capital market participants, and investors in the United States. The Financial Guaranty segment provides financial guaranty insurance for public finance and structured finance obligations; and offers credit enhancement solutions that enable municipal and asset-backed issuers to facilitate access to capital markets. It provides direct insurance to issuers and lenders, and reinsurance to financial guarantors.
MGIC Investment Corp. (NYSE: MTG; down 6.72% right now) - MGIC Investment Corporation, through its subsidiary, provides private mortgage insurance to the home mortgage lending industry in the United States. The private mortgage insurance covers residential first mortgage loans and expands home ownership opportunities by enabling people to purchase homes. The private mortgage includes primary and pool mortgage insurances. Its primary insurance provides mortgage default protection on individual loans and covers unpaid loan principal, delinquent interest, and various expenses associated with the default and subsequent foreclosure, and generally apply to owner occupied, first mortgage loans on one-to-four family homes, including condominiums.
Radian Group (NYSE: RDN; bucking trend after plunging and up 0.36% right now) - Radian Group, Inc., through its subsidiaries and affiliates, operates as a credit enhancement company that provides credit protection products and financial services to mortgage lenders and other financial institutions. The Financial Guaranty Insurance segment insures and reinsures credit-based risks. The Financial Services segment specializes in credit-sensitive, residential mortgage assets and residential mortgage-backed securities, as well as in credit card and bankruptcy-plan consumer assets. The company's customers include mortgage originators, such as mortgage bankers, mortgage brokers, commercial banks, and savings institutions; and financial institutions.
I normally don't like to talk about stocks here on UrbanDigs.com, but when it involves the mortgage insurance companies and is in regards to a 30% plunge in the sector during a 5 day trading period, I feel it's worthwhile to discuss. Obviously, investors are pulling bids fast in anticipation that major losses are mounting in the secondary mortgage markets and the holders of assets that use these companies for credit protection!
As for the ABX Indexes, well the plunge seemed to find a bottom yesterday and I'm now focusing on whether it will hold, rebound, or start a new leg down! The chart on the right shows you the current stabilization after yesterday's trading. In no way is this soothing news after the severity of the selloff last week, but hopefully its a sign of a rebound. In my opinion, this is why the equities markets sold off towards the end of last week. For those interested in what the ABX Index is, here is a quick breakdown:
ABX = Asset Backed Index
HE = Home Equity
AA = Credit Rating
07-2 = Issuance for 2nd half 2007
PS: I'm in the last lap of developing UrbanDigs.com PHASE II - del boca vista! I have been spending a lot of my time on this new site and apologize for the lack of content regarding the current state of the Manhattan marketplace. Once I get the new site launched, and bugs fixed, I'll go back to mixing up content again! Hang in there guys! I expect launch to be within 2 weeks.
Posted by Dan Green
Thu Oct 25th, 2007 11:01 AM
This chart looks like some folks were selling on the rumors -- and Merrill and Bank of America didn't dissappoint.
Now, it's on to the Fed's meeting next week...
Posted by jw
Thu Oct 25th, 2007 02:38 PM
Supposedly, Manhattan real estate is stronger b/c its co-op structure and expensive nature meant tighter lending standards, which I imagine is somewhat true. But I wonder how many Manhattanites took out home equity loans based on the phenomenal gains their apartments saw. Any idea if this will play a role in the coming months the way mortgage resets are wreaking havoc?
Posted by Noah
Thu Oct 25th, 2007 02:55 PM
jw - No, I dont think so. I think mortgage resets will lead to more nationwide defaults and foreclosures and is what the ABX indexes are pricing in now. Obviously there is NO appetite for residential mortgage backed securities right now. That market is a mess.
The SIDE EFFECT of this though, will be tighter standards, fewer lenders, fewer loan options and higher rates as risk rises with more defaults.
We must keep in mind that outside manhattan what happens in housing, effects wall street and lending standards which then effects our pool of buyers. Strange because we are not seeing the defaults or foreclosures here but see the same side effects of it.
Also, we really are yet to see any trickle down from housing into consumer spending. That must be a concern going into 2008. I think 2008 will be a very bad headline news year for housing, and people will see that the problem is deep. BUT, how the markets react to that news is the question. You'll find that some stocks will rally on real bad news when they see signs of life or bottoming; just not sure when yet.
Posted by jw
Thu Oct 25th, 2007 03:15 PM
Gothca, thanks! But I'm also wondering about how many home owners in Manhattan took out home equity loans (are those included in the mortgage backed securities column?) to pay for renovations, vacations, credit cards, etc. Have you heard any anecdotal evidence to this?
Posted by Noah
Thu Oct 25th, 2007 03:42 PM
jw - hmm, really dont know. I don't think these count in the MBS arena.
MBS arena that is in trouble right now are subprime loans whose orignators that pooled them into bonds and resold them to investors on secondary markets. Those investors (brokerages, hedge funds, etc) now hold assets that cant be resold. So, they are no longer buying new MBS. So, the lender has a harder time putting new capital to work.
I think HELOC's and Credit debt will be a whole separate problem as time goes on. LIBOR rate is still stubbornly high, and hasn't fallen as much as one would expect with aggressive fed easing and drop in bond yields. I think helocs, credit debt, and auto loans will be the next wave of consumer insolvency in 2008.
Posted by ww
Fri Oct 26th, 2007 10:27 AM
The freefall continues, that didnt stabilize really, more like prepare for the final plunge. Everything
AA.07-1 53-00 / 56-00 (04-00)
A.07-1 27-00 / 30-00 (01-16)
BBB.07-1 17-00 / 20-00 (01-00)
BBB-.07-1 16-00 / 19-00 (01-00)