Mr. Douglas Rossbach

GLG News^SM Analyses by Douglas Rossbach(?)

A Better Way To Stop Foreclosures

March 10, 2009

Analysis of:Obama's Housing Plan | topics.nytimes.com

Most economists agree that we are now in a vicious cycle of defaults>foreclosures>dropping house prices>economic recession>rising unemployment> more defaults, etc. While the recently approved stimulus package and TARP funds may reduce the likelihood of a complete meltdown of our financial markets, these actions do not address one of the root causes of the credit crises, namely mortgage defaults and the resulting foreclosures. The Obama administration recognizes the importance of interrupting this vicious cycle, and their proposal to use government funds to encourage loan modifications is a step in the right direction. Unfortunately the results of earlier loan modification programs have been awful, with approximately 60% of the loans re-defaulting; and it appears that the administration’s new initiatives, bundled under the Homeowner Affordability and Stabilization Act, are poorly structured and may suffer a similar fate.

There is a fair solution to the housing crisis without government bailouts

October 30, 2008

Analysis of:Why the Feds Rescue Banks, Not Homeowners | www.usnews.com

There is growing momentum in Washington (that is now being whipped into a frenzy by the upcoming elections) to help struggling homeowners directly by buying and or modifying their mortgages.  The government has so far failed to do this, preferring instead to pump capital and liquidity into the banking system.  The government's reluctance to get involved with homeowners is understandable.  The problem is massive and messy.  Five million loans are headed for foreclosure, many of these loans are sitting in securitizations and it is difficult to determine who controls them, and the government does not want to incur the moral hazard of helping or encouraging irresponsible behavior on the part of borrowers or lenders.

Mortgage Insurance .. Helped Today, Gone Tomorrow?

October 10, 2008

Analysis of:Rescue Sunday | online.wsj.com

The mortgage insurance industry would appear to benefit from the latest government actions to inject liquidity into the credit markets and reduce foreclosures.  After all, anything that will stem the drop in housing prices and prop up the economy should reduce mortgage defaults and mortgage insurance claims.  Moreover the industry should benefit from more cautious underwriting and improved pricing.  Assuming the mortgage insurers survive the current credit crisis, things should be rosy right?  Wrong. It is unclear what value the mortgage insurers bring to the emerging mortgage market now that Fannie and Freddie are government owned and the industry is moving toward plain vanilla, prime product.  In this future, credit risks are well understood and easily priced.  Fannie and Freddie no longer need a downgraded counterparty to share the risk, and the banks which will control most new lending will want to hold on to all the profit margins that they can.

Private Mortgage Insurance Companies Running Out of Options

June 27, 2008

Analysis of:Moody's Lowers Its Ratings on Radian and Two Units | online.wsj.com

The mortgage  insurance industry has suffered horrific losses and is quickly losing ground in a struggle for survival. Triad announced that it will cease insuring new loans.  The three major mortgage insurers (MTG, PMI, RDN) have been downgraded below AA, the minimum rating required by the GSEs (Fannie Mae and Freddie Mac).  The GSEs are allowing the MI's to continue insuring their loans, based on plans submitted by each company detailing how they will restore a AA rating.  These plans are becoming harder to execute. Despite holding over $18 billion in cash and investments(including reserves), market capitalization for the three companies has fallen from $15 billion one year ago to $1.2 billion today.  It is next to impossible for  the MI companies to raise significant new equity at these prices.  Long term debt has also become very expensive. Credit default swaps on Radian debt are now priced at junk bond levels.

Rating Agencies Drive Mortgage Insurer's Quest for Capital

June 12, 2008

Analysis of:Fitch Cuts Mtge Insurer Ratings; Sees Pressure Until Late '09 | online.wsj.com

Recently Fitch, S&P and Moodys all lowered the ratings of the major mortgage insurance companies (MTG, RDN, PMI). The rating agencies justified these downgrades based on challenges and the high losses the MI industry is incurring as a result of the meltdown in the mortgage market. To manage this risk, the MI companies have set aside huge reserves to cover the expected losses and have also dramatically changed pricing and underwriting standards.  Moreover, most of the MI Companies continue to have more than enough statutory capital to justify much higher credit ratings.  Despite all these efforts, the rating agencies continue to hint of further downgrades and have several companies (Radian and MGIC) on negative watch.

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