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Moody’s downgraded another $33 billion in subprime mortgage backed securities, including a substantial amount of AAA and AA rated issuances from the 2006 vintage. That represents nearly 8% of all mortgages the agency rated for the year. It clearly shows that loan quality (these are first lien issuances) was terrible through 2006; which will surely pressure the market in terms of defaults as those loans reset in 2008 and 2009. From the release:
Moody’s Investors Service said on Thursday that it cut ratings on $33.4 billion of securities backed by subprime residential mortgages because the underlying home loans are steadily deteriorating in the face of falling home prices and a tight lending environment. The downgraded securities are backed by subprime first-lien mortgages originated in 2006 and represent 7.8% of the original dollar volume of securities that Moody’s rated from that year. A further $3.8 billion may be downgraded later. Moody’s also said that another $23.8 billion of first-lien residential mortgage-backed securities were put on review for possible downgrades. That includes 48 securities rated Aaa, the highest, and another 529 rated Aa, the agency noted.
It’s nice to see that while they officially downgraded $33 billion, they are still looking closely at another $24 billion in downgrades. Always good when a company puts nearly 15% of their total ratings on watch for downgrade in one day. Amazing.
I normally don’t cover much of the downgrade news because PJ at Housing Wire does such a tremendous job with it. If you like learning about the latest in rating agency news, head over his way.
They also made a note of exceptional interest that we’ll delve in to in-depth coming up which is:
The rating agency also warned that efforts to stem losses through major loan modifications aren’t likely to materialize any time soon, citing findings from a recent survey of mortgage-servicing firms.
Which just shows that the problems in the industry will not be corrected by a quick silver bullet from either the government or the lenders; it’s going to be a long, hard process no matter which way you cut it.
It’s been a busy news day and we’ll catch you up after we catch our breath over here.
subprime is contained my **s. CBS had tried to report the amount of these SP loand written and it was looking like close to a TRILLION dollars. I tried
============= (1)
Until recently, CDOs had been the fasted-growing debt market — outpacing corporate and municipal bond sales by dollar total — with about $500 billion sold in 2006, up from $99 billion in 2003, according to Morgan Stanley.
About a quarter of the content of all CDOs sold last year in the U.S. was made up of securitized subprime mortgage loans. CDO sales slumped to $11.9 billion in July from $36.9 billion in June, according to JPMorgan Chase & Co.
…Money market funds with total assets of $300 billion have invested in subprime debt this year.
…Fidelity Investments, the world’s biggest mutual fund company, owned $2.3 billion in CDO-issued commercial paper in two money market funds….The biggest money market fund in the U.S., Fidelity Cash Reserves Fund, had 1.5 percent of its $98.2 billion assets invested in CDO commercial paper backed by subprime debt.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aEUtlgwzL
================ (2)
“This will go down as one of the biggest financial illusions the world has EVER seen”
- Randall W. Forsyth, writing in Barron’s - Aug 2007
It was all a big scam to unload garbage loans on stupid foreigners.
“He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the ‘excess’ pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt… until now.”
http://wcvarones.blogspot.com/2007/08/barrons-on-mortgage-mess.html
http://housingpanic.blogspot.com/2007/08/housingpanic-quote-of-day.html
===================== (3)
“…But changes in ratings will force a re-pricing of the roughly $800 billion in subprime-mortgage bonds sitting in investment portfolios across the globe.”
Will subprime woes spill over to stocks?
Fears rise that rating-agency reviews could be a catalyst
http://www.marketwatch.com/news/story/stocks-feel-subprime-sting-debt/story.aspx?guid=%7B7B5B1C8B%2D5E0D%2D4C11%2D890E%2D96DA77B7C562%7D
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==============
So this suggests that the total outstanding CDO market from recent years stands at about roughly 1 Trillion or more (interpolating from 500B in 2006 to 100 B in 2003). Of that 1/4 of the content is securitized subprime mortgage loans. ~ 250 B. marketwatch says there id 800 billion of it.
Now if you’ll permit an indulgence… Recent experience with the Bear Sterns hedge funds (Structured enhanced strategies or some such inane name) showed that when these investments were owned in a leveraged scheme, they essentially became worthless. The Bear Sterns funds lost on the order of a 1-2 billion each.
So that means that only ~20 Billion of ~250-800+ billion has been fessed up so far. The article suggests that some of this trash is hidden in money market funds, where at least it isn’t leveraged an makes up
============= (1)
Until recently, CDOs had been the fasted-growing debt market — outpacing corporate and municipal bond sales by dollar total — with about $500 billion sold in 2006, up from $99 billion in 2003, according to Morgan Stanley.
About a quarter of the content of all CDOs sold last year in the U.S. was made up of securitized subprime mortgage loans. CDO sales slumped to $11.9 billion in July from $36.9 billion in June, according to JPMorgan Chase & Co.
…Money market funds with total assets of $300 billion have invested in subprime debt this year.
…Fidelity Investments, the world’s biggest mutual fund company, owned $2.3 billion in CDO-issued commercial paper in two money market funds….The biggest money market fund in the U.S., Fidelity Cash Reserves Fund, had 1.5 percent of its $98.2 billion assets invested in CDO commercial paper backed by subprime debt.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aEUtlgwzL_qc&refer=home
================ (2)
“This will go down as one of the biggest financial illusions the world has EVER seen”
- Randall W. Forsyth, writing in Barron’s - Aug 2007
It was all a big scam to unload garbage loans on stupid foreigners.
“He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the ‘excess’ pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt… until now.”
http://wcvarones.blogspot.com/2007/08/barrons-on-mortgage-mess.html
http://housingpanic.blogspot.com/2007/08/housingpanic-quote-of-day.html
==
============= (1)
Until recently, CDOs had been the fasted-growing debt market — outpacing corporate and municipal bond sales by dollar total — with about $500 billion sold in 2006, up from $99 billion in 2003, according to Morgan Stanley.
About a quarter of the content of all CDOs sold last year in the U.S. was made up of securitized subprime mortgage loans. CDO sales slumped to $11.9 billion in July from $36.9 billion in June, according to JPMorgan Chase & Co.
…Money market funds with total assets of $300 billion have invested in subprime debt this year.
…Fidelity Investments, the world’s biggest mutual fund company, owned $2.3 billion in CDO-issued commercial paper in two money market funds….The biggest money market fund in the U.S., Fidelity Cash Reserves Fund, had 1.5 percent of its $98.2 billion assets invested in CDO commercial paper backed by subprime debt.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aEUtlgwzL_qc&refer=home
==
technical problems? Whatever.
russ - thanks for your comments, they got caught in the spam filter but are live above. i’ll comment back shortly.
Today’s WSJ front page has the writedowns. Those are admitted losses of ~20 bilion from several us/ european financial firms/banks.
Bloomberg article about subprime bonds in money market accounts:
============= (1)
Until recently, CDOs had been the fasted-growing debt market — outpacing corporate and municipal bond sales by dollar total — with about $500 billion sold in 2006, up from $99 billion in 2003, according to Morgan Stanley.
About a quarter of the content of all CDOs sold last year in the U.S. was made up of securitized subprime mortgage loans. CDO sales slumped to $11.9 billion in July from $36.9 billion in June, according to JPMorgan Chase & Co.
…Money market funds with total assets of $300 billion have invested in subprime debt this year.
…Fidelity Investments, the world’s biggest mutual fund company, owned $2.3 billion in CDO-issued commercial paper in two money market funds….The biggest money market fund in the U.S., Fidelity Cash Reserves Fund, had 1.5 percent of its $98.2 billion assets invested in CDO commercial paper backed by subprime debt.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aEUtlgwzL_qc&refer=home
================ (2)
“This will go down as one of the biggest financial illusions the world has EVER seen”
- Randall W. Forsyth, writing in Barron’s - Aug 2007
It was all a big scam to unload garbage loans on stupid foreigners.
“He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the ‘excess’ pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt… until now.”
http://wcvarones.blogspot.com/2007/08/barrons-on-mortgage-mess.html
http://housingpanic.blogspot.com/2007/08/housingpanic-quote-of-day.html
===================== (3)
The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.
http://online.wsj.com/article/SB119205925519455321.html
http://housingpanic.blogspot.com/2007/10/wall-street-journal-page-one-expose.html
“…But changes in ratings will force a re-pricing of the roughly $800 billion in subprime-mortgage bonds sitting in investment portfolios across the globe.”
Will subprime woes spill over to stocks?
Fears rise that rating-agency reviews could be a catalyst
http://www.marketwatch.com/news/story/stocks-feel-subprime-sting-debt/story.aspx?guid=%7B7B5B1C8B%2D5E0D%2D4C11%2D890E%2D96DA77B7C562%7D
==============
So this suggests that the total outstanding CDO market from recent years stands at about roughly 1.5 Trillion or more (interpolating from 500B in 2006 to 100 B in 2003). Of that 1/4 of the content is securitized subprime mortgage loans. ~ 250 B. marketwatch says there id 800 billion of it.
Now if you’ll permit an indulgence… Recent experience with the Bear Sterns hedge funds (Structured enhanced strategies or some such inane name) showed that when these investments were owned in a leveraged scheme, they essentially became worthless. The Bear Sterns funds lost on the order of a 1-2 billion each.
So that means that only ~20 Billion of ~250-800+ billion has been fessed up so far. The article suggests that some of this trash is hidden in money market funds, where at least it isn’t leveraged an makes up
Last post didn’t go through either. I tried to put it all together as best I can understand it.
Russ - they all came through, thanks for your thoughts! I’ll comment on them when I get settled in this AM. - Morgan
Russ - you raise a great point which seems verified by a recent interview I did with a former Wall Street employee who worked in the CDO market. I called the post “Do You Think China’s Gonna Forget?” where he talked about the billions lost in single days, and angry Austrian and Chinese investors demanding to know where their millions of dollars were…
http://blownmortgage.com/2007/09/16/do-you-think-chinas-gonna-forget/
Russ, this letter from Kyle Bass outlines your points and highlights the biggest scam in the world aspect of this recent credit orgy:
http://blownmortgage.com/2007/08/21/a-letter-from-a-man-who-gets-it-that-we-should-all-understand/