Thursday, May 15, 2008

Freddie Mac's ABS Portfolio Debacle/Discount Window

So how bad are home loans performing? Lets take a look at Freddie Mac's ABS loan portfolio. Kudos to Karl Denninger's forum for picking this up. Please click on the chart below, and make sure you are sitting down when you do because you might pass out after seeing how ugly this is.



No these are not typos. Still feel like buying financials? This chart is horrifying. This is the portfolio that Freddie moved over to the Level 3 asset land of "make believe". I would have moved this piece of garbage over there too if the accounting rules allowed it.

Lets break down these #'s.

First of all, 100% of these loans were originally securitized as AAA paper.

60 Deliquency rates rates:

Oh my god this is bad. 27% of the subprime loans are 60+ days delinquent. 10% of Alt A's are 60 days plus late. This was AAA paper guys!!! How does this happen?

Whats funny is only 6% of the HELOCS(home equity loans) are late. I guess its easier to pay that $300 HELOC payment versus your $2500 mortgage!

It doesn't even matter because the HELOC loans will never be paid back because they are second in line for payment after the original loan. This is why the HELOC paper is being bid for pennies on the dollar in the credit markets.

% downgraded from AAA

42% of the subprime loan securities have been downgraded from AAA. You think maybe the ratings agencies realize you have a little problem when almost a third of your loans are 60 days plus late?? Uhhh.... yeah! Notice an additional 29% have been put on the watchlist for a possible downgrade. As these delinquencies continue to rise, expect them to be dropped down from AAA as well.

THIS IS ALT-A DATA IS KEY. Look at the watchlist for Alt-A. 31% of the portfolio is on the watchlist! Do you realize how many Alt-A loans that were done? Every speculator used this loan as well as every other buyer who bought a house that they couldn't afford! I thought this was only a subprime problem?


Oh no guys and gals its much worse than that. The average 60 day delinquency rate of this whole $142 billion dollar portfolio is now at 10%. Its only going to get worse as housing prices continue to drop.


So the Alt-A loans are now performing at 98%. BUT 10% are now 60 days delinquent which is about to force these Alt-A securitizations to be downgraded from AAA. Can you say shoe drop???

When a securitization loses its AAA rating it obviously drops dramatically in value. The subprime securities are probably almost worthless with a 27% delinquency rate.

Almost every loan that is 60 days late will likely end up in foreclosure. Once you are that far behind, its pretty evident that you can't afford where you are living.


Bottom line:

This is a $142 billion dollar loan portfolio that is disintegrating right before our eyes. Now you see why this portfolio was moved over to the Level 3 asset category. This is flat out fraudulent activity in my opinion. How long can these accounting games be allowed to go on?


Now you see why its so hard to get a loan these days. Its obvious the banks have very little capital.


This is why you saw record borrowing from the dicount window as seen here:


"May 15 (Bloomberg) -- The Federal Reserve's direct loans of cash to commercial banks climbed to the highest level on record in the past week as money-losing lenders increasingly turn to the central bank for funds.

Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14, the central bank said today in Washington. Separately, the Fed's loans to Wall Street bond dealers rose by $75 million to $16.6 billion."



This credit crisis is far from over. Your proof is up above. Freddie's stock actually rose 10% after announcing these earnings. HA! What a joke. This goes to show you how irrational the market is acting. Denial is a powerful emotion.

The cooking of the books continues. This type of fraud needs to be stopped or housing will never stabilize.

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