Post by jeffolie on Feb 15, 2007 18:45:50 GMT -6
Downey Financial (DSL) has only $62m in reserves on a $15b portfolio. Their portfolio is 90% in So, Calf, and 80% in the neg-am market, almost all prime. Ultimately as 2007 rolls along and neg am debtors start hitting the 110-115% reset clauses, this so called prime market will make subprime look like a picnic. If you run your eye to the weighted average interest rate in January, 2007 note that prime borrowers are paying a 7.60% weighted interest rate. Many borrowers using these loans may not even know that’s the real rate. In fact if they are aggressive neg am types they may be paying 3-4%% and piling the other 4% on to their balance. Depending on the reset hurdle of 110 or 115%, it means that after two to four years of this, these mortgages revert to regular amortization at the regular rate, which right now is 7.6% for prime borrowers. Why aren’t they refi-ing into 6.25% regular 30 year mortgages? Some probably are, but many can’t afford them or qualify for them. Tucked away in a 2005 10-q from Downey is the following:
Our current practice imposes a limit on the amount of negative amortization on all our loans we originate to 110% of the original loan amount.
I believe we may be seeing the front end of the early 2005 neg ams (bought near the market top) tsunami rolling into the bay. Here’s the Downey non-performer progression currently and its early days. It’s the kill zone size and speed of the monthly jumps in virtually all these numbers being reported that is the eye opener for the non-comatose.
Jul .27%
Aug .32
Sep .39
Oct .47
Nov .55
Dec .68
Jan .78
wallstreetexaminer.com/blogs/winter/?p=434#more-434
Our current practice imposes a limit on the amount of negative amortization on all our loans we originate to 110% of the original loan amount.
I believe we may be seeing the front end of the early 2005 neg ams (bought near the market top) tsunami rolling into the bay. Here’s the Downey non-performer progression currently and its early days. It’s the kill zone size and speed of the monthly jumps in virtually all these numbers being reported that is the eye opener for the non-comatose.
Jul .27%
Aug .32
Sep .39
Oct .47
Nov .55
Dec .68
Jan .78
wallstreetexaminer.com/blogs/winter/?p=434#more-434