Tuesday, April 3, 2007

Remain Calm, All Is Well (Part Twelve)

This post by RodgerRafter in the Market Traders Forum steered me to the data behind the following chart for Impac Mortgage Holdings, an Alt-A lender:

Source data for the chart may be found here.

Okay, so we have it on "good authority" from the 600 pound Gorilla of the Alt-A tranche of the mortgage world, IndyMac, that Alt-A is not going to be tainted by the problems that have led to a blow-up in the subprime world:

"I think the facts, as we've outlined them, speak for themselves in terms of the credit quality of Alt-A production versus subprime -- and, in particular, how Indymac's credit quality shines in relation to the industry, validating our lending standards and practices," commented Michael W. Perry, Indymac's Chairman and CEO. "Alt-A is not 'slightly' less risky than subprime, it is a lot less risky. While Indymac does not have industry cumulative loss data for conforming loans for this time period, I find it inconceivable that conforming loan losses could be much lower than Indymac's Alt-A cumulative losses of less than 1/100th of one percent, or 0.81 basis points, at this time.

Then we have actual data, shown above. Now, IndyMac may be correct and their standards may be high enough to avoid the problems that seem to be creeping up on Impac, should that trendline hold.

That said, keep a few things in mind and keep a close eye on IndyMac - they will tell the tale of whether the current mortgage problems are isolated to subprime or whether the rot has spread deeper:

  1. A lot of Alt-A products were sold with teaser rates. They'll be resetting over the next couple of years. Many home "owners" won't be in a position to refinance, either, with stagnant home values.
  2. When housing crashed in the Southwest in the 1980's, a lot of prime borrowers lost everything - and we are supposed to believe that Alt-A is going to hold up fine in the teeth of the ugliest housing market in living memory.

Remain calm, all is well. Sit there, watch television fnord, consume, go into debt, buy a big house with a liar loan, max out your credit cards. fnord All is well. All is well.


jmf said...

thanks from germany

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