Saturday, July 19, 2008
MGIC Results - 08 Vintage Worst Yet
Zimmerman countered that thinking, saying “the first quarter will be the least profitable the business will do in ‘08, because you still had an overhang of the ‘07 guidelines that we committed on. As the company and as an industry, I think you will see this in every company and our business.”If you look at the comments on the last post, I think you would get a clue as to why. There is still a lot of speculation rolling out, and I can guarantee you that the main housing bubble lending culprits are rewriting loans more conventionally to get them off their books. But just changing the form of a loan doesn't do much; what has to change is that underwriting standards have to get much tighter.
The numbers appear to be bearing that out, as well. At MGIC, delinquencies increased from .26 percent last quarter to 1.11 percent of 2008 originations by June; it’s early in the game, to be sure, but that’s also a jump of 326 percent in one quarter on originations that were supposed to represent stronger underwriting.
Data on comparative trajectories for previous vintages at MGIC was not available when this story was published, but it’s instructive to note that by September of last year, overall delinquencies on the 2007 vintage (not just those mortgages insured by MGIC) were just below 3 percent. If current trending is any indication, MGIC’s 2008 delinquencies would be above that level in the same time frame.
And I repeat that the GSEs can't handle jumbos and that pressuring them to come off the ten percent down requirement in declining markets was ridiculous. Home values will continue to decline for years in the erstwhile hot markets. When you are losing 10% of your equity a year, a 5% downpayment is no incentive at all to stick. Also, I think this data calls appraisal quality deeply into question.
What has happened is that the big losers have been frantically rewriting loans to shove them off into the GSE market. But rewritten junk is junk unless the debt has been written down to affordable DTIs, and the guidelines are way too loose. As borrowers begin to recognize grim reality, the defaults will escalate. This number of early defaults is a storm flag. We are barely into third quarter, and MGIC has 2008 delinquencies of 1.11%? The average payments due would be about three, so over 1 in 100 borrowers can't make one of the first three-four payments? Incredible. That performance would have been considered completely unacceptable for subprime pools not that long ago.
Therefore Congress' housing bailout bill is a real money loser for the public, and Stern is really clueless. Apparently he is competing for the Al Gore Prize in Economics, which is granted to the person deemed to have constructed the most compelling model furthest from reality.
Asset-backed loans? OMG, we forgot that for a moment! What a revelation! Quick, call Fitch, S&P & Moody!
Links to this post: