Figure 1: The Traditional Lending Process. Mortgage Lenders

Transcription

1 Figure 1: The Traditional Lending Process Mortgage Lenders 1

2 Figure 2: The End of the Stable Interest Rate Environment percent Recession Yr Fixed Rate Mortgage Yr Treasury

3 Figure 3: Wall Street Enters the Mortgage Market Payments Loan Funds Global Investors Investment Bankers Mortgage Originators 3

4 Figure 4: A Simple Senior-Subordinated Security Class A: AA rating Class B: BBB rating Class C: Not Rated Equity Residual The Coast Federal Savings and Loan Deal The advent of Senior/Subordinated securities 4

5 Figure 5: Mortgage and Treasury Rates: Recession 30-Yr Fixed Rate Mortgage 30-Yr Treasury Recession

6 Figure 6: Stagnating Home Prices: Repeat Home Price Index, percent change from a year ago Recession Recession Source: OFHEO 6

7 Figure 7: Interest Rates: percent Recession Recession 30-Year Fixed Rate Mortgage 30-Yr Treasury Core CPI

8 Figure 8: Home Prices: Home Price Index, March 1994 = Source: OFHEO, The HPI is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties 8

9 And more Predictably than Stocks 350 March 1994 = S&P Home Price Index (HPI) Source: OFHEO, The HPI is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties 9

10 Why Save for a Downpayment? Source: 100% Financing (80% 1st Mortgage & 20% 2nd Mortgage No M.I.) 80/15/5 (80% 1st Mortgage & 20% 2nd Mortgage No M.I.) 80/10/10 (80% 1st Mortgage & 10% 2nd Mortgage No M.I.) 103% Financing (allows you to include up to 3% of closing costs) 107% Financing (allows you to include up to 7% of closing costs) 10

11 Figure 9: Representative Website for Subprime Lender Source: 100% Stated Income 95% NO DOC/No Income/No Asset/No Employment 125% Equity Lines Rate/Term Refinance (95% to $417,000K & No Seasoning) Investor Cash-Out Refinance 100% Investor Purchase 95% Purchase & Rate/Term Refinance (with 575 credit scores) 90% Purchase & Rate/Term Refinance (with 525 credit scores) 100% Financing to $417,000 (no minimum scores) 107% Financing (roll in 7% closing costs) 103% Financing (roll in 3% closing costs) 97% Purchase & Rate/Term Refi (with 580 credit scores) 11

12 Figure 10: Representative Website for Subprime Lender (part 2 Source: 100% Stated Income 95% NO DOC/No Income/No Asset/No Employment 125% Equity Lines Rate/Term Refinance (95% to $417,000K & No Seasoning) Investor Cash-Out Refinance 100% Investor Purchase 95% Purchase & Rate/Term Refinance (with 575 credit scores) 90% Purchase & Rate/Term Refinance (with 525 credit scores) 100% Financing to $417,000 (no minimum scores) 107% Financing (roll in 7% closing costs) 103% Financing (roll in 3% closing costs) 97% Purchase & Rate/Term Refi (with 580 credit scores) 12

13 Figure 15: Mortgages Outstanding: 2007 Mortgage Market, $ trillion Mortgage Market, $10.2 trillion 17

14 Figure 16: Weakening Underwriting Standards: Combined Loan to Value % 30% 100% Financing 33% % 24% % 15% 10% 8% 16% 78 5% 3% 3% % % 45% 40% Limited Documentation 41% 38% 44% 16% 14% 12% 100% Financing & Limited Doc 12% 15% 35% 30% 27% 31% 35% 10% 8% 6% 7% 25% 4% 3% 20% % 0% 1% 1% Source: Estimates by T2 Partners 18

15 Home Equity Withdrawals ($ Billions) Prices only Increase, So Your House is Free Money Home Equity Withdrawals ($ billion) 1, Source:Freddie Mac, Federal Reserve, Fed staff Working Paper by Greenspan, Kennedy and Wachovia Securities 19

16 Figure 17: The Structure of a CDO Raw Material Sr./Subordinated Securities MBS Collateral CDO Structure AAA (84%) Super-senior (70%) US real estate loans Portfolio of BBB/ BB / B / A / AA notes of MBS securitizations AAA (10%) AA (2%) A (3%) BBB (4%) AA (8%) A (5%) BB (3%) BBB (3%) B (1%) BBB- (2%) Equity (2%) Equity (2%) Source: Commercial Mortgage Alert, Goldman Sachs 20

17 Figure 18: Delinquencies Increase for Mortgages 25.0 Percent of loans Seriously Delinquent (90 days or more past due or in foreclosure) 20.0 Subprime ARM Subprime FRM 5.0 Prime FRM Prime ARM Source: Mortgage Bankers Association 21

18 Figure 19: Precipitous Drops in Cap Rates Source CBRE/Real Capital Analytics

19 Figure 20: Loan Underwriting Standards Decline from 2002 to 2007 Source: Eastdil Secured/Wachovia Capital Markets, Intex Solutions & Trepp (2008 Info)

20 Figure 21: CMBS Issuance Grows in the 21st Century Domestic CMBS Gross Issuance, $ billion 12.0 Source: Commercial Mortgage Alert, RCG Banc of America Securities 2008 E 24

21 BPS Over 10Y UST Figure 22: CMBS Spreads Reach New Lows in CMBS Spreads to Ten-Year Treasuries AAA AA A BBB BBB- 1/4/2007

22 BPS Over 10Y UST Figure 23: Spreads Widen to Unprecedented Levels in AAA AA A BBB BBB- 10/31/2008

23 Figure 24: The Historical Record of Capitalization Rates