GLG News by Mr. Joseph Smith II, President & CEO
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
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Will only owrk if they do something with the mortgages!
December 12, 2008
RBS Promises Borrowers Six-Month Respite Before Foreclosing on Mortgages | www.bloomberg.com
1. Only works if the loans are re-performed. 2. Can be a rat in the snake waiting to pass. 3. Can make the situation worse with failure to reperform 4. There are good and bad modifications
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Blame the models and Risk Based Pricing
September 30, 2008
Why Risk Models Failed to Spot the Credit Crisis by Adam Davidson | www.npr.org
Models only cover certain variables and the crisis involved much more than mortgage pricing and a few macroeconomic issues. Risked based pricing as used in the mortgage industry had an underlying flaw that caused the models to fail. Greed played the other part.
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What to expect from the bailout.
September 12, 2008
U.S. bails out Fannie Mae, Freddie Mac, ousts CEOs | www.bizjournals.com
1. Shows how truly bad the mortgage industry has gotten and how scared the feds are of where we are going. 2. If the major source of liquidity can not survive, who will? 3. What should be the outcome.
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May 28, 2008
UBS Falls After Saying More Mortgage Losses Possible | www.bloomberg.com
The news is not good for UBS. The amount of mortgage holdings in US and Non-US declining markets will lead to further losses. 1. $45 B of additional US Mortgage Holdings. 2. An undisclosed amount of non-US mortgage holdings. 3. A UK and Eurpoean mortgage market that is going down as well. 4. The slump in home prices is not over and is impacting performing mortgages.
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The Real Write Downs - Whats in a number
May 27, 2008
Banks Keep $35 Billion Markdown Off Income Statements | www.bloomberg.com
The article is right on target in pointing out the various issues around bank reporting their losses todate. 1. Allowable accounting standards. 2. Permanent versus Temporary Losses 3. Capital Requirments The article goes on to highlight the various issues around soveriegn wealth funds, capital levels and loan leverage. The article ends with a list of "hidden losses" by various financial institutions. The interesting part of the article is the acknowledgement of an additional $35 B to be taken by the banks. The bigger issue is the losses to be taken by the investors.
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Whose loss is it, Banks or Investors?
May 12, 2008
The Biggest Housing Losers | online.wsj.com
1. While the article does a good job of pointing out that the losses will be greater under the House FHA Plan than expected and that the tax payers will carry the cost, it along with the plan by the House misses the mark by thinking banks will take advantage of the plan. 2. The real owners of these loans are the investors, not the banks. 3. The investors are already not doing short sales, why would they take 40 and 50% losses under this plan.
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Fannie, Freddie and FHLB's are providing funding for now.
April 10, 2008
Fannie and Freddie drive home loans | www.ft.com
Through mid 2008 these will continue to be the drivers of home loan financing. Coming up quickly will be HUD/FHA. The unkown related player will be community banks, credit unions and small regionals. There is a problem that is already surfacing, add on fees by the banks using these groups for funding.
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Be Careful What you ask for you might get it.
April 4, 2008
Overdue Consumer Debts Highest Since 1992, ABA Says | www.bloomberg.com
It looks like the legislative solution is not getting off the ground again as far as working out loans. The proposals that have come out are mainly directed at going forward purchasers, builders and cities. So much for the defualted borrower. The ideas that were being floated carried their own risk.
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Expect to see more suits and bigger failures
March 24, 2008
Merrill Sues XL Capital to Maintain CDO Insurance | www.bloomberg.com
The article raises valid concerns on security of these insured transactions. Expect: 1. More suits as the insurers try legal tactics to invalidate coverage. 2. That the contracts and premiums have been paid and the courts will likely take a dim view of legal ploys to invalidate coverage based on semantics. 3. That the additional capital that has been raised by the monolines is still not sufficient to cover all of their risk.
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What will the FED do next, what is left for them?
March 18, 2008
Fed Aggressive on Financial Front | money.aol.com
The Fed does not know what to do after they reduce interest tomorrow. This follows on the tail of the bailout of Bear Sterns in a sweet heart deal with JP Morgan/ Chase, and the opening of the FED window to non-depositories. The next issue and crisis is going to be the dollar value and its impact on the economy. Gas is going to continue up as will most other costs that are fuel dependent. What will be the impact as a G-7 goes off the dollar and say to the EURO?
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That did not take long - Bear Sterns use of FED bailout
March 14, 2008
Bear Credit Woes Send Stocks Lower | money.aol.com
1. Market reacts to Bear liquidity and FED temporary bailout plan by dropping over 200 points. 2. Will market continue to yo-yo as these events happen. 3. Will FED change plan if Bear fails?
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March 12, 2008
Stock Futures Pare Early Gains | money.aol.com
How afraid is the FED of where the economy is going that has caused them to promote such a drastic step as opening up funds to non depository banks? 1. The Fed lending at Par for devalued assets to Non Banks. 2. Will more money be made available when the markets continues down? 3. How will write offs upon liquidation of the underlying asset be addressed, during the 28 days or before it is repledged to the next 28 day period?
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Fed Rate Cut Expected - Is that a good idea?
January 30, 2008
Fed Rate Cut Expected | news.aol.com
While many companies and investors are planning on what to do with cheaper money due to the rate cuts, one of the implications has been that a rate cut will help re-start the mortgage industry engine. Yes, originators will get some new refi's completed and earn some fee income, and there will be a few borrowers who were not in the market before that get in to it now. There will even be some purchases of some of the mortgage inventory. Due to tightening credit standards and qualification criteria, the number of new loans will be minimal and the refi's will be to the best credit worthy borrowers. Truthfully, the rate cuts of last week and this week will actually hurt the mortgage industry due to adverse selection in exisitng mortgage pools with subsequent accelerated write-downs.
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How the current rate cuts and other stats will impact the market
January 24, 2008
Stocks Seek to Extend gains | money.aol.com
The reduction in interest rates is going to have a negative impact on the existing mortgage portfolios due to adverse selection. The decrease in those seeking unemployment benefits is very misleading. The stimulus package is not going to help those in real trouble and will pay some bills for most.
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January 15, 2008
Countrywide rescue: $4 billion | money.cnn.com
Over valued versus the risk of litigation, talent flight, legislative constraints, portfolio loss and about every other imaginable variable. Overvalued servicing rights with disappointed servicing investors. Average industry systems, nothing great. Short staffed already. More leaving. Mozillio defineltly a liability and not an asset.
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B of A acquires a stomach ache
January 15, 2008
Countrywide rescue: $4 billion | money.cnn.com
While on paper the acquisition versus the valuation of loan servicing looks good, the reality is a whole mess of operational and regulatory risk. The Countrywide CIO was just announced leaving for FIS (Fidelity) and the state of the art systems was one of the selling points in the acquisition. An asset sale will probably be the answer.
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Risk - Reward investments/endeavors require active investors
December 31, 2007
Hedge funds assess exposure to banks | www.ft.com
While it is true that investors risk money on potential returns and soundness of the underlying assets, it is also true that both the packager and the investor have analytical staff whose job it is to understand the investment. The underlying collateral of mortgages does have the value of the stream of mortgagors' payments; the key is that the stream be maximized to create the fullest return. Once the value of the stream is established then the pool will have worth and a basis for a market value. Instead of sitting back and bemoaning the investment banks who merely provided an investment option with very clear indications of the types of loans in the prospectus. Belittle the society that endorses short cuts to sound business.
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Law of Unintended Consequences is at work again.
December 10, 2007
Llenders Agree to Freeze Rates on Some Loans | www.nytimes.com
Potential Lawsuits, repurchase demands and flawed collateral documentation will cause many more problems than the intended solution will solve. The limited nature of the eligible loans will be far less than the 1,000,000 loans identified by the administration. The parties making the agreement do not have the right to do so.
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HSBC as a Bellweather Indicator
November 13, 2007
HSBC, the Subprime Seer:Sanguine View Isn't Likely | online.wsj.com
HSBC's indications do not necessarily indicate the extent of change in the market. Since HSBC is very forthcoming with their news, they do not capture some lenders who have not been in the past. These other lenders, some of whom are significantly larger than HSBC, have been deferring some wirte offs and will take larger positions of loss going forward. HSBC does indicate the trend but not the severity.
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October 10, 2007
Unlikely Mortgage Winner | online.wsj.com
The problem with programs of this type is flight from debt. For many of the lenders for which we work, we can not find a high number of these foriegn buyers. if they have any problem with their financial situation they leave the country. Numerous principal residences are vacant and we have tracked them to housing scams where the refinance or purchase was related and inflated.
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