Sunday, February 11, 2007

rating agencies fallen asleep.../ doug kass

23,5% of loans problematic and still no downgrade? wow. they are really behind the curve and have fallen asleep......almost every reader of the numerous housing bubble blogs could have done a better job just by screening the daily news. looks like the call for more competitions in the rating sector is more than justified!

23,5% faule und problembeladene kredite und immer noch keine runterstufung? unfassbar! die sind wirklich unfähig, gucken nur in den rückspiegel und sind im tiefschlaf. jeder gelegentliche leser der diversen bubble blogs hätte hier einen besseren job gemacht. wird zeit das die großen 3 endlich neue konkurrenz bekommen.


The little-known secret in the subprime market is that the ratings agencies have been lax in their downgrades of subprime paper. The recalcitrant agencies -- Moody's, Fitch and Standard & Poor's -- have quietly abetted (blessed) the mushrooming of very aggressive subprime lending that has allowed the Wall Street firms selling these mortgage products to prosper. According to Jim Grant, the number of downgrades at Moody's, for example, were even with upgrades in 2005. Last year, the downgrades/upgrades ratio rose slightly to 1.19:1. The problem is that the historical downgrade/upgrade ratio stands at 2.5:1!

Up to now, lenders (and borrowers) have greased the subprime market -- making it the swiftest-growing portion of residential real estate lending from 2001 to 2007. Lenders relied on the candor of the borrowers -- as nearly half of the subprime mortgages originated last year were low or undocumented.

Here is an example of the relaxed behavior of the agencies. This week's Grants Interest Rate Observer calls attention to a 13-month-old, $350 million asset-backed pool of mortgages, MABS 2006-FRE1.
Foreclosures now stand at 9%, delinquencies at 10.5% and real estate owned at 3.5%.
in other words, about 23% of the loans are problematic -- and neither Fitch nor S&P has downgraded the issue. No doubt investors in MABS 2006-FRE1 (hedge funds, brokerages, institutions, etc.) mark the issuance to par (since it has not been downgraded).


But what will happen when the ratings agencies finally downgrade MABS 2006-FRE1? (Which seems inevitable, but late!) Answer: Investors will sell.

Anyone for a 60-bid....(as you can see on the bbb- this can happen quickly.....wie man hier bei dem bbb- sehen kann dauert ein verfall nicht allzu lange....)
What is astonishing to this observer is the almost universal view that the prime market is in good shape and that the weakness in subprime will be contained.
there is hope out there doug, the "a paper" looks to be also in trouble...(aa and aaa hangs still in there close to 100, but this can change very quickly.....)
es gibt noch hoffnung für doug, so sehen die einfach a besicherten papiere aus. die aa und aaa sind noch nahe 100. betonung liegt auf noch....

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9 Comments:

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