Posts Tagged ‘Gretchen Morgenson’

What to stress?

The coincidental timing of the release of stress test results and Fannie Mae’s 1st quarter statement makes a tempting target for comparison — look at the stress test assumptions, compare them with Fannie Mae’s actual results, and show how accurate the Fed’s “most adverse” scenario for credit defaults actually is and how much scarier things actually are in the real world.

The New York Times’ Gretchen Morgenson gives the calculus a go in her column today, and botches it.

Losses recently seen in Fannie Mae’s portfolio support this view. In the first quarter, its subprime loans had average losses of around 68 percent; the Fed expects two-year losses in subprime to be, at worst, 28 percent.

Alarming, right? But Morgenson appears to be comparing two totally different numbers. The stress tests projected loss *rates* — that is, what proportion of a portfolio would end up in default.* For subprimes, it anticipated loss rates on subprime betweem 21 and 28 percent. The Fannie numbers Morgenson cites show loss *severity* — that is, how much Fannie will lose on those loans that do go into default, not its losses on the entire portfolio.

The Fannie statement does include some ominous indicators — of Fannie’s small subprime portfolio, between 22 and 47 percent of mortgages are more than 60 days late on payment — but the “serious delinquency” rate right now for Fannie subprime, indicating the loans likeliest to go into foreclosure, currently stands at 17.95%, well within the stress tests’ projections.

* Clarification: The stress tests projected the “loss rate” — that is, the projected total proportion of the holdings’ value that will be lost. The Fannie loss severity numbers don’t show that.

Sunday, May 10th, 2009 | Tags: , ,
Posted in A Lot More | No Comments »

Investor backlash

Don’t miss Jody Shenn’s excellent piece in Bloomberg News about the investor campaign to curb loan modifications — a helpful corrective to Gretchen Morgenson’s Times column this week, which bizarrely championed mortgage securities investors’ claim that a bill currently in Congress providing loan servicers with legal protections when they modify loans will have the unintended effect of subsequently protecting them from legal action challenging predatory lending or other wrongdoing that occurred back when the loan originated.

The obvious answer to the problem, and one Morgenson should recognize given her extensive work covering lending abuses, is to make sure that borrowers have good legal and financial advocates available to them — to level the playing field with the likes of Bill Frey of Greenwich Financial Services, who is leading the charge against the legislation. Legal services lawyers routinely review borrowers’ mortgage paperwork, find glaring violations of the Truth in Lending Act or Real Estate Settlement and Procedures Act, and pursue legal action where warranted as a first course of action – not as an afterthought to a loan modification. No borrower should enter a loan modification casually, and right now all too many do, often with the encouragment of a mortgage broker turned modification “expert.”

Congress has already increased funding for nonprofit housing counselors. Now, in addition to passing safe harbor for servicers (the House already has), it needs to amp up legal services for borrowers, too.

Tuesday, April 28th, 2009 | Tags: , , , , ,
Posted in A Lot More | No Comments »