RSS Feed by Tanta on 6/01/2007 09:05:00 AM
Friday, June 01, 2007
Subprime Update: We Built This City on Rock and Roll
A number of you good folks have been linking to this presentation by Pershing Square Capital Management in various comment threads. It's an interesting presentation (unless you own shares of a bond insurer, in which case it's fascinating). I for one am interested, if not fascinated, by this particular chart, which shows the dollar volume of subprime purchase-money piggyback loans, by documentation type, over the 2004-2006 period.
This is important data to contemplate, since credible claims have been made that a lot of new home purchase volume over the period in question was running on the fumes of the most marginal borrowers--stated income high-CLTV subprimes--and that any cutback in that kind of lending spells disaster for the home builders. And we have seen some "voluntary" tightening of this exact kind of subprime credit; we have also just heard the OCC hinting loudly at a regulatory "involuntary" tightening here.
So take some white-out to all the red and yellow parts of the bars on this chart, and then do the math. Ick.
Note: "Verbal verification" means "oral" (phone) verification of employment, but not of income. (You call up Calculated Risk and ask, "Does Tanta really work for you? OK, thanks.") It is, in other words, what you all think of as "stated income." The "none" category includes loans that do not even state income. They probably don't even "state" employment; if the borrower does fill out the box on the application for "employer," no one verifies that on the "none" loans. So on the "verbal" loans you know the borrower is employed but you don't know how much they actually make; on the "none" loans you don't know nuthin' 'bout nuthin'.
This is important data to contemplate, since credible claims have been made that a lot of new home purchase volume over the period in question was running on the fumes of the most marginal borrowers--stated income high-CLTV subprimes--and that any cutback in that kind of lending spells disaster for the home builders. And we have seen some "voluntary" tightening of this exact kind of subprime credit; we have also just heard the OCC hinting loudly at a regulatory "involuntary" tightening here.
So take some white-out to all the red and yellow parts of the bars on this chart, and then do the math. Ick.
Note: "Verbal verification" means "oral" (phone) verification of employment, but not of income. (You call up Calculated Risk and ask, "Does Tanta really work for you? OK, thanks.") It is, in other words, what you all think of as "stated income." The "none" category includes loans that do not even state income. They probably don't even "state" employment; if the borrower does fill out the box on the application for "employer," no one verifies that on the "none" loans. So on the "verbal" loans you know the borrower is employed but you don't know how much they actually make; on the "none" loans you don't know nuthin' 'bout nuthin'.
