Fitch Slashes Prime RMBS to Junk
A: Not that it matters right? Green shoots, green shoots! Hey bartender, pass the kool-aid, Jo-Bu needs a refill! No surprise here, expect more as time goes on and the problem expands to higher quality debt classes.
Via HousingWire.com, "Fitch Slashes Prime RMBS to Junk":
Fitch Ratings downgraded multiple Citigroup Mortgage RMBS series from triple-A to junk today after placing them on negative rating watch. The ratings agency made the downgrades as part of an ongoing review of prime and Alt-A RMBS transactions as the housing downturn continues to unwind.This is the part when performing stuff starts to non-perform, spreading from subprime to alt-a to prime. This is NOT just a subprime problem, and at this stage I don't know how anybody out there can possibly argue this.Many of the vintage 07 series involved in Citigroup’s RMBS downgrades migrated to double-C from triple-A but several made the leap to triple-C from triple-A.
The agency also slashed five series of Bear Stearns RMBS from triple-A to double-C, and one from triple-A to triple-C.
Bank of America Funding’s RMBS on the most part maintained its triple-A rating, although a single series previously placed on negative ratings plunged from triple-A to triple-C.
Fitch recently revised its surveillance methodology for prime and Alt-A residential mortgage-backed securities to incorporate ResiLogic’s mortgage loss and default model, which determines a base-case loss expectation in conjunction with a transaction specific assessment of the pool’s actual performance.
This is an overall debt problem and includes whole loans on the books of financials in addition to securitized assets that are starting to deteriorate in the higher quality debt classes. I wondered about this when I questioned whether the stock markets were getting the duration of this problem right, in early April referring to Mike Mayo's note that as one class of the banks balance sheet gets cleansed, another deteriorates:
Not sure how he confirmed that the whole loans were only marked down to an average of 98 cents on the dollar, but from what I am hearing many of these loans are marked down more and sitting on 'accrual (hold) books', which are marked on the spot based on loan defaults and overall book performance - you are not selling, so mark-to-market is meaningless. By the nature of being a hold book this is nothing new, illegal or other - just how it is. Loan loss provisions are done on a quarterly basis, not as assets stop performing.Interesting times ahead as we deal with the second phase of this crisis.If the total loans in the book deteriorated 5%, well then the entire book is remarked down 5% from the previous mark or par. It's backward looking. In this regard, Mike Mayo is correct to assume future adjustments because only the eternal optimist would think that higher quality debt classes are completely unaffected by this slowdown; heck the low bids for these loans are telling you that there is downside risk not priced in properly. So it is fairly safe to say that whole loan books considered good with no plans to be resold in PPIP, are behind the curve in terms of their current market value and present a valid concern for the future. In addition, if banks are allowed to suspend mark to market accounting on these loans and carry them at par or close to it then PPIP will have no influence since there will be no upside for the banks to take something off the books.
Moving on to the point, while one toxic area of the banks books gets cleansed by PPIP we should expect another area to start increasing in toxicity due to the nature of this crisis.
Comments (9)
Have to link this, seems DB and GS may be backing up your claims. Strange indeed, eh?
http://www.businessinsider.com/henry-blodget-new-york-city-real-estate-prices-to-fall-at-least-another-35-2009-5
Posted by MeekSheep | May 15, 2009 7:16 PM
Well this is coming from another angle, but I think it is worth mentioning. I am an oil analyst and as such I look at the oil and refined product demand very carefully. A few notes here our statistics are only a week behind and I consider energy consumption a clear indicator of an economy health. Well here is the ugly picture gasoline demand has steadily deteriorated from around -1.5% year on year in January to around -4.6% y/y. I believe that as unemployment increase we should hit 5.5%~6% of demand destruction. Now if you look at diesel which is more tied to goods transportation and industrial production well we are down around 14% year on year this number has been increasing lately. Finally Jet fuel down around 10% don't know if you notice the emptier airports. Suffice to say that when I hear the CNBC stock cheerleaders talk about a rebound I just laugh.
Octavio
Posted by octavio | May 15, 2009 8:48 PM
Noah:
Keep up the great analysis. Right now the best that can be said for the economy is that, at the moment, it appears that a Great Depression 2/collapse of our financial architecture has been removed from the table. That was probably worth 1000 points off of March's bottom. However, now we need to see how the markets absorb the fact that we are at the beginning stages of a prolonged, nasty recession.
As you noticed in an earlier post, the credit markets are showing continued improvement, and that is encouraging. However, I see no reason to buy stocks at the current levels because they are simply too expensive based upon what will be depressed earnings going forward.
The only exceptions I am making are GDX, MOO, DBA, and GLD and SLV. I do own some OIH, which will probably be going down, but I have done well trading that ETF and now I will just hang on to it for a while. I have no cajones to short the market after what happened to me when I made that trade two weeks too early in April, but it probably is the right move for the next several weeks.
Posted by mh23 | May 16, 2009 8:02 AM
Octavio, What are your thoughts on natural gas?
Posted by In Debt We Trust | May 16, 2009 4:27 PM
Not a natural gas expert by any means, but although the price has increased slightly and is now above $4/mmbtu I think the inventory situation is also pretty bearish. Natural gas is used mostly for electricity generation and I am sure a relatively healthy demand destruction has happened there too. Additionally the U.S. has become a dumping ground for LNG cargoes, since Europe nat gas storage is pretty full. All in all a bearish picture unless some serious hurricane damage decreases production significantly. Anyhow this is going a bit far from the main topic which is real state.
Posted by octavio | May 16, 2009 8:08 PM
thats ok...talk away!
Posted by Noah | May 16, 2009 9:40 PM
Noah
ok back to real state here, I am almost ready to go into contract in a unit at East 94th st between Lexington and 3rd. Just curious what is your opinion about this area. I started looking at the west village but Carnegie Hill definitely caught my eye.
Posted by octavio | May 17, 2009 10:45 AM
I like the CARN HILL area. I have a property for sale there and I lived on 94th and 2nd for 4 years. Certainly a smaller buyer pool in this area, north of 90th street, but west of 3rd its a very desirable area.
out of curiosity, is it in 152 E 94th?
Posted by Noah | May 17, 2009 11:17 AM
Nope it is in 170 east 94th, any opinion on that building?
Posted by octavio | May 17, 2009 12:12 PM