Real Estate, MBS, CDO's & Derivatives
In his latest, Fleck comments on the rot that lies ahead for the "structured-finance" wing of the housing food chain.
"In the latest sign that supply of condominiums has outstripped demand, a leading national developer of condo-hotels has missed payments on loans for two major projects."
To spend a minute on sub prime lender New Century Financial in particular, the company reported a slight miss when it reported earnings last week.
But what is really important: The fact that loans it held for sale ballooned sequentially from $6.3 billion to $9.3 billion. (Of course, that's on top of the $16 billion or so that New Century holds away from that particular category.) Nevertheless, the company chose not to bump up its loan-loss reserves.
"Other income" was up radically year-over-year, and no one seems to have a good handle on exactly what's in that category. More ominously, FPDs (first-payment defaults) were up considerably.
A very knowledgeable friend who's an insider in the sub prime industry said: "That is the single-worst thing you can see in a company -- people who never make the first payment. I cannot begin to tell you how bad things are, and getting worse."
Suffice to say, as the real-estate market unwinds, we will see enormous problems cropping up in the whole arena of structured finance and the derivatives that go with it.
I have heard about isolated cases of "jingle mail," where homeowners have mailed in the keys because they can't make the payments and no longer have any equity in their homes.
That phrase was a prominent feature of the S&L bust and ensuing real-estate debacle in 1990-1991 -- and something we'll be hearing lots more about in the future.
As sure as I am that there's going to be a train wreck in structured finance/derivatives, I'm sure I only have the faintest idea of how bad it's really going to be.
"In the latest sign that supply of condominiums has outstripped demand, a leading national developer of condo-hotels has missed payments on loans for two major projects."
To spend a minute on sub prime lender New Century Financial in particular, the company reported a slight miss when it reported earnings last week.
But what is really important: The fact that loans it held for sale ballooned sequentially from $6.3 billion to $9.3 billion. (Of course, that's on top of the $16 billion or so that New Century holds away from that particular category.) Nevertheless, the company chose not to bump up its loan-loss reserves.
"Other income" was up radically year-over-year, and no one seems to have a good handle on exactly what's in that category. More ominously, FPDs (first-payment defaults) were up considerably.
A very knowledgeable friend who's an insider in the sub prime industry said: "That is the single-worst thing you can see in a company -- people who never make the first payment. I cannot begin to tell you how bad things are, and getting worse."
Suffice to say, as the real-estate market unwinds, we will see enormous problems cropping up in the whole arena of structured finance and the derivatives that go with it.
I have heard about isolated cases of "jingle mail," where homeowners have mailed in the keys because they can't make the payments and no longer have any equity in their homes.
That phrase was a prominent feature of the S&L bust and ensuing real-estate debacle in 1990-1991 -- and something we'll be hearing lots more about in the future.
As sure as I am that there's going to be a train wreck in structured finance/derivatives, I'm sure I only have the faintest idea of how bad it's really going to be.
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