Monday, March 2, 2009

S&P Analyse MBSs

Late mortgage payments hit record levels

Standard & Poor’s examined the performance of loans bundled into bonds or notes. The data showed that “non-conforming” or subprime mortgages hit a record delinquency rate, those late by 90 days+, in Q4 2008, rising to 28.6 per cent of all such loans outstanding. S&P noted that the stock of repossessed homes stood at 3.5 per cent, up from 2.8 per cent at the end of the Q3 and 1.6 per cent in the first three months of 2008. Charge-offs rose to almost 6.9 per cent in December, the highest level since August 2007. Rising delinquency rates could make banks even more reluctant to lend. An estimated 70-80 % of all UK subprime mortgages have been packaged, and the data give a comprehensive overview of those loans.

Posted by 51ck-6-51x @ 08:07 AM (2988 views)
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3 thoughts on “S&P Analyse MBSs

  • stillthinking says:

    Like a slow-motion car crash.

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  • Damie Down Under says:

    It’s not quite as simple as it seems. The rapidity with which interest rates have been reduced can inflate the number of accounts that are 90 days or more in arrears. For example, a borrower who is 60 days in arrears at 6.5% on an interest only mortgage owes GBP1069. If the interest rate falls to 3.5%, the borrower will be 90 days in arrears if he owes GBP 864. So the borrower could have made progress in reducing the absolute value of the arrears but would now be classed “delinquent” on the 90 days measure.

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  • Damie Down Under,

    Whilst I agree with your mathematical argument*, I don’t think the definition of delinquency is as you think. Generally delinquency is qualified to include only loans where payments are 3 or more months past due, so the outstanding payment is only considered if the debtor has actually missed the payments, rather than considering a notional outstanding basis.

    * Only a slight, almost not worth mentioning, quibble with the mathematics:
    Assuming the loan value is 100K I can only put the 60 day arrears at 1055.11 at maximum:
    100K * (1.065 ^ (60 / 360) – 1) = 1055.11
    Your result suggests either a higher loan value, an accrual basis of 30/355 [a very odd accrual basis, maybe a typo of the incorrect 30/365] or some other fiddle…
    60 * ln(1.065) / ln(1 + 1069 / 100K) = 355

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