NovaStar nonsense / Greenberg

What a surprised....Not contained to 2006 vintages.....Shocking :-)

Make sure you see this post from Rodger Rafter including a must see chart about the past vintages from Nova!!!!

Was für eine Überraschung....Die Probleme betreffen also nicht nur die in 2006 verbrieften Hypotheken.....Schockierend :-)

Ihr müßt Euch zudem unbedingt unter dem o.g. Link den Post von Rodger Rafter zu den letzten Verbriefungen ansehen!!!!!!!

Takeover talk keeps swirling around NovaStar (nfi), probably yet another effort to keep investors from focusing on what really counts, including a continued deterioration in trust data across all vintages. From Stifel Nicolaus:

"While weakness in the 2006 vintage is widely expected, NFI data showed losses climbing well above our projections in all vintages from 2004 forward."

So much for subprime slime being just a little grime.

Nova Star Financial / riding the wave

aarons mortgage lender implode-o-meter is now at 45. i think he can add nfi very soon..... http://mortgageimplode.com/

aarons sterbeliste der untergegangenen institute ist aktuell bei 45. nfi könnte der nächste sein.

....But while problems at NovaStar, one of the nation’s top 20 mortgage issuers, seemed to crop up suddenly, they were evident enough from 2002 to 2004 that a big mortgage insurer and two Wall Street banks stopped doing business with the company.

NovaStar’s financial performance in those years was blinding. With Scott F. Hartman as co-founder, Mr. Anderson built NovaStar as a low-cost, low-overhead lender that relied on as many as 16,400 independent mortgage brokers across the nation. After issuing shares to the public in 1997 at a split-adjusted price of $9, the company had explosive growth. NovaStar made $2.5 billion in mortgage loans in 2002; by last year the annual figure had risen to $10.23 billion. The stock hit $70.32 in March 2004; it now trades at $5.

größer/bigger http://tinyurl.com/2z8y25

As the real estate boom accelerated, lending practices loosened significantly at many companies specializing in high-risk borrowers. NovaStar was no different. A flier sent by NovaStar to mortgage brokers in 2003 highlighting its easy credit terms also noted: “Did You Know NovaStar Offers: to Completely Ignore Consumer Credit!”

The combined loan-to-value ratio in its mortgages, a measure of risk that compares the size of the total loan on a property to the underlying collateral, averaged 81.2 percent in 1998. By 2006, that figure had jumped to 87 percent. A minimum loan-to-value of 80 percent is considered prudent.

Like other lenders, NovaStar also eased up on the required documentation of a borrower’s income during the boom. In 1998, some 35 percent of the company’s mortgages did not have full borrower documentation attached to them; last year, almost 53 percent did not

It is perhaps not surprising, then, that NovaStar’s early payment default rate for loans underwritten in 2006 reached 8.19 percent, up from 5.61 percent in 2000.

Until recently, though, few investors seemed concerned about NovaStar’s lending practices. Perhaps they were lulled by its earnings, which grew to $132 million in 2005 from $32 million in 2001.

In 2002, however, the PMI Group, a leading provider of mortgage insurance to issuers, terminated its relationship with NovaStar Home Mortgage

A Lehman Brothers unit, among Wall Street’s largest packagers of residential mortgage loans that it sells to investors, terminated its relationship with NovaStar Home Mortgage in 2003.

One loan involved a property in Ohio bought for $20,000 in August 2002 and sold two months later to NovaStar borrowers for $77,500. The average sales price in the neighborhood was $31,685 at the time.

The appraiser on that loan stated that the property was rented for $900 a month, but Aurora found that it generated $475 in monthly rent.

Last week, Fitch Ratings placed NovaStar’s Mortgage Servicing unit on alert for a possible downgrade. The company’s “ability to fund its ongoing servicing operation and maintain servicing quality could come under pressure,” Fitch said.

>last week for a possible downgrade.......wow! real professionials.....with a finger on the pulse of the industry they are analyzing....

>doch schon letzte woche.....für ein mögliches downgrade. was machen die eigentlich hauptberuflich?

the go-go atmosphere at NovaStar’s Kansas City headquarters is gone. Next to online job postings for loan officers are those seeking specialists in modification of problem loans and litigation.

read this link for more infos on nfi http://tinyurl.com/2h7udv

Kass: Four to Blame for the Subprime Mess

i´m glad that greenspan is alive and well and that he can/must see that his legacy is going down day by day. i´m pretty sure that when the slump is over in a few year (or longer) that his reputation as "the greatest central banker of all time" will no longer stand.

ich bin wirklich froh das greenspan das noch zu lebzeiten erleben muß. sein vermächtnis wird wohl noch auf jahre wirken. ich bin mir ziemlich sicher das nachdem die scherben irgendwann zusammengekehrt sind seine reputation als angeblich" bester zentralbänker aller zeiten" nicht länger bestand haben wird. bitte unbedingt sein reden lesen.....spätetens da dürfte der lack ab sein.....

There are four main culprits responsible for the expanding subprime debacle that threatens to upset the 'Goldlicks' scenario so many are trumpeting. I've listed them in descending order of importance -- and ranked by school grade!:

Culprit #1: Former Federal Reserve Chairman Alan Greenspan was no smarter than a fifth grader.

Greenspan did two big things wrong.

First, the former Fed chairman took interest rates far too low and maintained those levels for far too long a period in the early 2000s, well after the stock market's bubble was pierced. (Stated simply, he panicked).

The Fed's very loose monetary policy served to encourage the new, marginal and non-traditional home buyer -- the speculator and the investor, not the dweller -- to embark on a speculative orgy in home purchases not seen in nearly a century. ...

Second, Greenpsan suggested -- at just the wrong time and at the very bottom of the interest rate cycle -- that homeowners retreat from traditional, fixed rate mortgages and turn to more creative and floating rate mortgages -- interest only, adjustable option ARMs, negative amortization, etc.

He said this in February 2004 at a Credit Union National Association 2004 Governmental Affairs Conference:

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

thanks to http://themessthatgreenspanmade.blogspot.com/

One year later Greenspan continued the same mantra and cited the social benefits of the financial industry's innovation as reflected in the proliferation of the subprime mortage market.

"A brief look back at the evolution of the consumer finance market reveals that the financial services industry has long been competitive, innovative, and resilient. Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10% of the number of all mortgages outstanding, up from just 1% or 2% in the early 1990s...(now over 20% )

We must conclude that innovation and structural change in the financial services industry has been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have. This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers. "

But even as Greenspan was taking interest rates to levels that encouraged the egregious use of mortgage debt and exhorting the opportunities in creative and variable mortgage financing, there were some smart cookies out there who recognized the risks; here are quotes from two of the smartest who warned of the danger in the mortgage market.

"When I took economics in World War II, and we were studying the Great Depression, one of the reasons given were all the interest-only loans that came due. They were an indication of an economy getting into unsound lending. Ever since then it's been a rule that when you go into interest-only loans, you're very substantially increasing the risk of default. "

-- L. William Seidman. Former Chairman of the Federel Deposit Insurance Corporation and Chairman of the Resolution Trust Corporation

Our own Robert Marcin put it even more precisely (and vividly) in his prescient warning back in mid-2005.

"If Greenspan had a clue (remember, he didn't have one in the tech bubble, or aybe he did), he would jawbone the banking industry to tighten or even strangle lending standards for residential real estate. He should not kill the entire economy to slow the real estate markets. Now that bag people can buy condos in Phoenix with no down payments, maybe the Fed should get involved. You can't expect mortgage bankers to do anything; they get paid to lend money. But like Greenspan's unwillingness to raise margin rates in 1999, I expect him to do nothing until the market declines. Then, the taxpayers will be on the hook for the stupidities of the real estate speculators. Remember, I expect a sequel to the RTC in the future. "

-- Robert Marcin, Making Money Before Housing Crumbles.

Greenspan will go untouched and will continue to give speeches at $200,000 a pop.

Culprit #2: Irrational lenders like Novastar, New Century, Fremont General, Option One, Accredited Home, OwnIt Mortgage Solutions and others were no smarter than a sixth grader.

Many of these mono-line subprime lenders grew from nothing to originating billions of dollars of mortgage loans almost overnight. Their rush to lend and helter skelter growth relied on the candor of the mortgagees and not on common sense, prudent lending or reasonable underwriting standards.

The growth in subprime-only originators was irrational, but the industry will now be rationalized and the marginal lenders will go bankrupt. And, in the fullness of time, the more diversified lenders will benefit from their demise.

Culprit #3: Wall Street was no smarter than a seventh grader.
The role of the brokerage community in the packaging, warehousing and trading of mortgage securities is immense, with about a 60% share of the mortgage financing market. After tax shelter abuses in the early 1980s, junk(y) bonds in the late 1980s, overpriced technology stocks and ludicrous IPOs and disingenuous research reports in the late 1990s, one would think that Wall Street had learned its lesson.

It has not.

Defending the indefensible -- despite the "policing" of the SEC and Gov. Spitzer's initiatives -- remains Wall Street's credo. Time and time again, the major brokerage firms exist for the purpose of selling product (stocks and bonds), not for providing objective research or for the commitment to client's profitability. The higher a market surges, the easier it is for Wall Street to peddle, and package, junk.

The magnitude of the potential gains are always too attractive and tempting particularly as product demand swells into another cycle excess, as it did in subprime. Astonishingly, even the obligatory emergency conference calls intended to persuade investors that all is well were superficial and failed to disclose the inherent conflicts that each and every multiline brokerage has.

thnaks to http://www.itulip.com/

The major brokerages will be litigated against -- again. They will pay large fines but will proceed in business until the next bubble -- which they will also capitalize on.

Culprit #4: The rating agencies were no smarter than an eighth grader.
The little-known secret in the subprime market is that the principal ratings agencies have been lax in their downgrades of subprime paper and securitizations. This should not be considered a surprise, because like their Wall Street brethren, they prosper from the rising tide of credit issuances. In doing so, like a teacher who has turned his back on a boisterous and disobedient class, those recalcitrant agencies -- Moody's, Fitch and S&P -- have ignored the erosion in credit quality and abetted the rush and market share taking of subprime lending.

According to Jim Grant's Interest Rate Observer, downgrades at Moody's were even with upgrades in 2005. In 2006, downgrades/upgrades rose slightly to 1.19 to 1; this compares to the historical downgrade/upgrade ratio of 2.5 to 1. Importantly, until downgrades are issued by the agencies, investors routinely carry their investments at cost, or par -- downgrades force investments to mark to market ... and sell.

The rating agencies will likely go unscathed because they always do.

amen!

read also

"I Hear Nothing! I Know Nothing!" from tim http://tinyurl.com/2ahvxs

"The Blame Game " from mish http://tinyurl.com/yr9q3m

click on the labels and skip the first/this one to read more

freddie and fannie

more evidence the risk premiums are a little bit out of control or as jeff saut would say he feels like more and more using the "Jessica Simpson model of investing" ....

i give you this number from the latest fannie mae filing for the year 2003!(watch under the fannie logo)!. http://ccbn.mobular.net/ccbn/7/595/644/ / pdf (they restated the numbers numerous times and have put up some number for 2004. i don´t remember how many billions they have found in accounting errors.......if you want to get angry you should read the link with the letter to shareholders with the smiling raines......page 3. since then they had to reduce their portfolio. but the proportion is still unbelievable) maybe their headquarter is located in ...........


ein beispiel mehr das in sachen risikoaufschlägen irgendetwas nicht ganz stimmig ist. jeff saut würde es wohl das "jessica simpson model of investing" nennen.........

ihr braucht euch dafür nur die datenreihe von fannie mae aus dem jahr 2003 ansehen. die haben danach die zahlen diverse male korrigieren müssen und wohl auch noch teilweise nummern für 2004 veröffentlicht. etliche mrd an buchhaltungsfehlern wurden gefunden. in den letzten jahren mußte fnm ihr portfolio reduzieren. die proportionen von eigenkaiptal und garantierten anleihen ist aber immer noch atemberaubend.




Outstanding MBS1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,166

1 Unpaid principal balance of MBS guaranteed by Fannie Mae and held by investors other than Fannie Mae.

größer/bigger page 1 http://www.fanniemae.com/ir/pdf/annualreport/2003/2003annualreport.pdf (pdf)

outstanding guaranteed mbs $ 1.300.000.000.000 trillion!

core capital 34.000.000 billion! (2003)

spread today 0,24 over us bonds!!!!!!!

relations at freddie are not much better/ die relationen bei freddie sind nicht viel besser

Feb. 19 (Bloomberg) -- Freddie Mac, the second-largest source of money for U.S. home loans, said ``strong, steady'' demand among Asian investors will support the mortgage-backed bond market.

``There's strong, steady demand for Freddie Mac securities in this area of the world,''

Investors in Asia hold $3.1 trillion, or about two-thirds, of the world's foreign reserves. They increased purchases of U.S. agency debt for a third year in 2006 as they shifted from Treasuries in search of higher yields and returns, (lets hope that this will continue..../ man kann nur hoffen das die das beibehalten....)

Freddie Mac notes returned 4.1 percent last year, the most since 2002, compared with 3.1 percent for Treasuries

that makes sense.....read this stat http://immobilienblasen.blogspot.com/2006/09/fannie-mae-could-be-hit-hard-by.html (much more infos!/jede menge mehr infos)

Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, Md.-based publisher that covers the home loan industry.

In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.

Three big lenders, NovaStar Financial , Deutsche Bank and BNC Mortgage, part of Lehman Brothers , sold more than half of their subprime MBS to Fannie and Freddie this year, said Andrew Analore, editor at Inside Mortgage Finance (looks like things are doing well for nova(nfi) and the other subprime players ........./sieht so aus als wenn bei nova /nfi und den anderen im subprimesektor alles bestens läuft....http://immobilienblasen.blogspot.com/2007/02/novastar-noise-saga-continuesgreenberg.html

but no worry....../ aber keine angst......

Other experts noted that when Fannie purchases subprime MBS, it usually only buys triple-A-rated tranches. In the event of losses, the triple-A (chart above) bits are the last ones affected. Ed Groshans, an analyst at Fox-Pitt, Kelton, estimated that if losses in these pools of mortgages reached 10%, investors in the triple-A tranches would still get all their interest and principal back ( well at least the a tranches are starting to show some sign of stress lately........../ die einfach a papiere zeigen immerhin ernste anzeichen von problemen.......)

Higher interest rates will cause more people to go delinquent on their mortgages, but not enough to push losses on these pools over 6%," the analyst said.

At the end of June, the loan-to-value ratio on Fannie's book of business was 54%, he added. ( i doubt that this can be said about the data for the last 3 years of subprime purchases...kann wohl nicht für die letzten 3 jahre der subprimekäufe gelten)

chart single a

and the bbb- is already diving......und die unterste stufe ist bereits im freien fall

The extra yield, or spread, investors demand to own Freddie Mac's notes over similar-maturity U.S. notes narrowed to 24 basis points on Feb. 16 from 32 basis points six months ago,.... (with the underlying assets depreciating and the homeowner refinancing at a record pace "2006 Cash-out refinancing hits 16-yr peak in Q3-Freddie "http://immobilienblasen.blogspot.com/2006/11/refinancing-freedie-mac-1994-vs-2006.html. und in derselben zeit fallen die zugrundeliegenden immobilienwerte und die hauseigentümer refinanzieren immer höhere hypotheken) Buying Support
Freddie Mac sold 35 percent of its reference notes to investors in Asia in the 12 months ended Sept. 30, compared with about 16 percent in 2001,

``Continued interest will support that sort of level,'' in the coming months, said Cook.

Asian investors bought about $135 billion net of U.S. agency debt last year, compared with net purchases of around $66 billion in government notes and bonds, according to Treasury Department figures. Buying of agency debt increased from $118 billion in 2005.

``From the perspective of central banks, it would make sense to shift to non-Treasuries because they probably want any bit of spread,''

China holds $1.07 trillion of the world's $4.99 trillion foreign reserves, the largest holding of any country. The next biggest holder globally is Japan, with $875 billion.

Freddie Mac had $776.9 billion in debt outstanding on Dec. 31, according to the company. Congress created McLean-based Freddie Mac and Washington-based Fannie Mae, the biggest mortgage finance company, to expand homeownership by increasing financing, and to provide market stability. (that really has worked well......./ man sieht gerade wie toll das gelungen ist.....) and with their creative handling on delinquencies the market looks more stable than it is.... thanks to mish! dank der eigenartigen handhabung von kreditausfällen sieht das ganze besser aus als es wirklich ist....)

http://globaleconomicanalysis.blogspot.com/search?q=freddie

i´m really no expert on accounting etc and i´m sure that the (by far) majority of the mbs backed by fannie and freddie are well protected and safe. but the proportion of the numbers and the fact that fnm could not provide correct numbers in the past and the almost non existent spread combined with the unravelling of one of the greatest bubbles of all times makes me wonder.......

lets hope the asians/the oil exporters will buy and buy and buy.........(and not just a few billions...)

bin sicher nicht ansatzweise ein experte in sachen bilanzierung etc. und ich bin ebenfalls überzeugt davon das der mit abstand größte teil der mbs gut abgesichert ist. aber die gewaltige diskrepanz zwischen ek und garantierten mbs und die tatsache das jahrelang keine bilanzen erstellt werden konnten kombiniert mit nicht vorhandenen risikoaufschlägen und nebenbei dem einbruch der größten blase der letzten zeit können einen nachdenklich werden lassen...

wünschen wir uns das die asiaten und die ölexportierenden länder weiter fleißig kaufen und kaufen und kaufen........

NovaStar Noise -- The Saga Continues.../greenberg

looks like the endgame is near.......get ready aaron :-) http://mortgageimplode.com/

sieht so aus als wenn für nfi das ende naht.

Trouble in subprime-land? It's everywhere, and it's finally catching up with NovaStar (nfi), which has been the focus of this column (for better or worse) for around five years, during which time the stock has just about done a full round trip. It was off nearly 8% today to close at $18.90; it hasn't been this low in nealry three years. I think it's about $3 away, adjusted for splits, from where it was when I first red-flagged it.

Now hear this: A compilation of delinquency data provided by the subprime mortgage provider (you just have to pull it all together from its website -- no easy task) shows that delinquencies in all outstanding pools of mortgages NovaStar has packaged and sold, as of the end of January, have leaped to 8.7%, or roughly double from a year earlier -- and a mere 2.83% at the end of 2004.

Subtract out the most recently originated pool and the delinquencies jump to 9.33%. They leap to 11% in pools at least a year old. Those less than a year old, meanwhile, have ratcheted up to 6.54%, or more than triple a year ago. (On all of those, the majority are more than two months late.)

Here's what investors should watch next: According to NovaStar's SEC filings, once it sells these loans, they are subject to recourse by the buyer if "defects" are found in the loan documentation and underwriting process.

Historically, NovaStar hasn't had much in the way of recourse, so it hasn't set up any reserves.(very conservative.........with selling exotic mortgages like this one.....maybe a little bit overstatet.sehr konservativ..... und das bei den ganzen exoticshen finanzierungen...)

But it also hasn't seen delinquencies quite like this. (Translation, recourse on even a small fraction of the $12.4 billion of loans the company had sold as of Sept. 30 could cause a big dent in NovaStar's balance sheet.) Not that such recourse will ever happen.

Of course, with a 25% dividend yield, investors understand that with unusually high reward comes unusually high risk, right?

You can only hope.

here is more from russ winter on nfi http://wallstreetexaminer.com/blogs/winter/?p=317