UPDATE...there is MORE bad news coming
I know I haven't posted much lately...hasn't been much to say. Sure, I could analyze the way things are falling out, but a million other people are doing that. I gave my input as to what I thought was going to happen, and for the most part, things are progressing as I said it would.
That said, I have been busy lately starting a new company. When I have been working, I have a little picture-in-picture window on my monitor where I can watch TV. I usually keep it tuned to CNBC as it is 'business' related news. They have been all over the subprime mortgage mess, with lots of attention on Bear Stearns and their hedge fund issues with the subprime market.
Then today they went somewhere new. This is something I have also said: this goes WAY deeper than just subprime mortgages. Alt-A and A-paper loans are next. That was the 'big' story CNBC was just talking about. The huge jump in alt-a loan delinquency, and how soon it was happening.
Here are the ALT-A delinquency numbers from CNBC:
2004 - 0.9%
2005 - 1.59%
2006 - 4.21%
To compare, subprime used to be in the 2-4% range, but is now over 14%. That said, I was talking to a contact who deals with capital markets and they were telling me about some pools of 'recent' alt-a loans where the delinquency rate had 18-20% of the loans 60 days late or more.
Alt-a loans were famous for the low and no-doc loans, stated income, stated assets, etc. Just because these people had 'good credit' doesn't mean they made the money to afford the homes they were buying. These borrowers are probably a bit smarter, and will be able to 'hang-on' a bit longer than the typical subprime borrower, but don't think there isn't going to be double digit delinquencies in the ALT-A markets in the near future.
Investors and speculators made up a large part of the alt-a market. As these 'investments' become huge financial burdens, watch them cut their losses by cutting prices to sell, or just foreclosing. These properties will add even more downward pressure on the market.
Let's not even think about the financial impact all this easy money is going to have on the bond market. Bear Stearns is doing 'corporate' damage control by firing some senior execs who were 'responsible' for their subprime mortgage mess. Lots of hedge funds, mutual funds, and retirement funds have exposure to mortgage backed securities in one form or another.
So watch the ALT-A loans next and look for eventual increasing delinquencies with even A-paper loans.
Now for a quick story.... I was in Las Vegas this past weekend. Ran into a guy I used to know who worked mortgages there. He and his wife were both in the industry. They had 4000+ sqft house, and both were driving nice Cadillac Escalades. I ran into the guy when he got out of the limo to open the door for our party. He said they took a bath on the house when they sold it, and both of the Escalades are now gone. He drives nice limos and she works at one of the local casinos. They are still making 'good' money, but nowhere near enough to afford the lifestyle they were living when the Vegas mortgage market was on fire. $700k houses and $1000 a month car payments need lots of income to maintain.
Well, there you go. I know it has been a while, but I have been busy. Like I have said before...this is going to take YEARS to pan out, so don't worry if I go a little while between posts. I'll be here watching the entire thing, so don't worry about that. Thanks for your patience.