"oil below twenty" alludes to Texas defaults where there were layoffs due to oil price crashing. See Peter Lynch Beating the Street, Fannie Mae chapter.
e.g. it's unemployment that is the bugaboo.
"Simultaneously housing prices fall as the bubble breaks furthur increasing loan to values."
Where? Nationwide? California? Florida? IndianaOhioMichigan? What's the geographical makeup of the option ARM pool? You think home prices are going to *fall* in North Carolina? Do you live here? Do you know what prices are here?
"As borrowers see equity disappear they stop making payments all together."
I'll take the other side of that bet. Option ARM holders have the lowest payment relative to other loan types. Lower hurdle rate relative to rental income if they can rent it out. Twenty illegals to a house? They'll *do* it.
If defense industry lays off, or oil goes below $20, then, yes, key in the door time. Indiana Ohio Michigan worry me more than California at *this* moment. Why?
"Takes NFI six months to kick them out of the homes which meanwhile get trashed, further reducing home values, and thats six months without any payments at all."
Data as to % of REO that gets trashed by borrower? Anything? Bueller?
"Then takes NFI (or any loan company in the same boat) another four months to sell the property after evicting the borrowers because of the slowing real estate market, making it ten month without any payments, maybe even more."
They'll rent it out.
Oh yeah, you forget to add:
MORTGAGE INSURANCE trending at 54-56% on 2006 vintage.
Amoritization of credit exposure via incoming cash flows from the securitization.
The degree of light and darkness will different from company to company.
Mortgage origination platform for many of the newer companies are not being given a positive value. Yes, margins are improving. But the focus right now is "can your origination platform break even?"
MHL appears to be a "yes" but note that they took a cost efficient subprime unit and blew it up. (And they may have to do some buybacks of some subprime paper). The key now is volume, and getting enough gain on sale to break even or profit off your platform to protect book value if your a newco.
Another newco came up light on volume.
A third has 2 weird valuation adjustments.
Not everybody is going to get their needed volume.
And, subprime lovers?
Rates adjust in 2007. So far we got good employment, but you need to watch that, plus collateral values, plus MI coverage.
Is the Fed one and done, or one and pause?
What I like:
The fattest coupons in the business.
A bronze medal means you don't get sent to the locker. $1.8 billion is respectable. Especially in this environment.
That bulk purchase, but I wish I knew more about the deal.
Costs down. Not 1.5% but NEW is a hoover vacuum.
They're not dead. Bronze medal means you're not dead. Now buy out Saxon already!
What I don't like:
They said 70% MI. I see 54%. Is 70% a target, or is better pricing causing them to rethink that target, or is MI too expensive for them? 2007 is coming and it's bringing a rate reset. Please please Mr. Bernake don't overtighten! They should talk about this in their releases, as they put in on the table in their presentation.
They needed to hammer home the fact that the economic returns will be the same regardless of whether securitization is treated as a sale or as a financing.
"NFI may have a big GAAP adjustment at some point if they follow through with what they said they were going to do in the 10K and accelerate the cost recognition of the securitization pool."
What's their rationale?
I'm thinking about buying a horse. I could get an athletic horse, ready for dressage, for about ten grand. How much does hay and oats run?
I could get a ground floor apartment.
I'd have to tape a giant garbage bag to his ass but exhaust fumes are exhaust fumes.
Save on gas. Plus I'd look like McCloud.
re: cream of the crop
While I think NLY manages as well as it can given that it's a passive mreit (and yes it would be grand if their salary was tied to the net interest spread they generate ;)) every newsletter I've ever seen always points to Thornburg...
I'm feeling it right now aok.
All this hoo-hah about Maria dropping the dime on Ben. Heck, b/t the previous Fed speak and end of quarter *window dressing* and the commodity spike, I wuzn't surprised the rest of the space pulled back. I wuz hoping it would because I sleep in too late and don't buy in time. I'm really bad about not buying a trend on the way up...
When a stock has a convertible preferred in "its" structure, how do you figure BV per share?
Do you multiply the # of cv pfd shares by the conversion multiple, add that to the # of common shares, then divide the result into the equity?
Or do you treat the dollar amount raised in the cv pfd offering as debt and subtract it out to get an adjusted equity figure?
I guess the former, but dunno...
I'm fighting with my broker to let me sell options naked.
I want to sell some calls simultaneously to purchasing more NFI here but I don't know which month is giving the best pricing. I'm looking at the 35's. You say greeks, I say fraternities.
It's probably enough to trigger speculators to take some profits, maybe enough to trigger momentum.
Joint like Dubai World, just send us the checks?
Or joint as in Iranians work side by side, get the know how, but on Russian soil, we get the oversight?
Chessmasters please comment.
FOMC divided b/t members like Yellen who is leery about overtightening and ones like Kohn who I think is nervous about pass-through pricing of oil. The "hawks" are very surprised at the lack of latter. All emphasize that none have committed to "X" number of rate hikes...it's all data dependent, and hence touch and go.
core CPI 0.3
Yellen says it's only one month's data. Now that's an optimistic bent for you. I think you have to watch retail consumption, and the CPI for signs of more pass through.
Do you see Iran situation resolving anytime soon? I don't. I'd be shocked if oil fell to $60 b/t now and 2007 (me pessimist bent).
Metals as an inflation signal? (Shrug).
My guess is 5.25%, m-a-y-b-e 5.50% but might they pause to let data build up? Sure.
If businesses eat the rising cost inputs and profits fall...earnings fall...but prices stay stable, then we're done tightening. If.
Kodak just announced price hikes because of silver costs (but that's just photography, feh).
Anecdotal evidence of small restaurants either passing on 5-10% increases in some prices, more are trimming serving sizes, due to fuel charges from distributors...also mandatory purchase volumes.
But for now the market says tightening is done, or is looking at the cake in the oven and grabbing that bowl of frosting...
NFI: credit losses are not removed as an unknown. But I don't know where the lid will be on the price and I don't know if 2007 is factoring into share pricing by Mr. Market.
MI is 56-57% of 2006-1. That's short of the 70% cited by mgt. going forward as a target. But NFI is tough on appraisals and stips.
Gotta love that WAC coupon, though!
Plus, they haven't blown up. That's nice too.
Whoops, that's my other ID.
Thanks for clearing that up. Actually, she's running fine, just one busted headlight lens.
I haven't since a single bearish news article about the metals or commodities.
I have seen articles about new money, funds entering the space, analysts talking about $1000 gold, $625 gold.
Even Marc Faber, who always takes the contrarian view after any price spike of anything, a few days said he was perplexed at almost every market rising simultaneously (he forgot treasuries), and switched to the 20 year supercycle theory of a bull market for commodities. Could Faber be that last bear going bullish that marks the top?
PD double tested 90 area yesterday...and failed.
Profit taking with a new wave of money ready to jump in...or a countertrend selloff, or a top?
I be stumped.
check your email in about two minutes, also check out the NFI info and opinions group on the Yahoo groups board, look in files section, and look for a folder that has analyst reports.
there are a lot of moving parts.
i would stagger in as the price can be volatile but that's just me.
NFI trades off of a dividend yield range and has done so since I've been following it starting 2003. I've watched the sector since 1998.
Companies that have gotten whacked have gotten whacked not because they traded too far over book but because management has screwed up (margin compression has hit everyone but did you read what Hoenig said last night?) even NFI got whacked to 25 not because of valuation but because they delayed the 10K.
MHL blew up NB Lending and that was management-driven, but you knew that. ECR priced too aggressively and clogged up their warehouse pipeline when pricing tightened. But you knew that. NTR ran their hedges toward 11 months and had to sell paper out at a loss to buy better yielding stuff. But you .....well, you know. SAX is certainly cheaper but they have only 17% MI of their portfolio. Personally I wish NFI would buy SAX it be a nice fit. But my point is, sometimes companies in the space are cheap for a reason.
Pricing is improving. Brokers are screaming about decreased comps and cut programs e.g. pricing is improving. Quote Me A Rate blew itself up with fraud. MILA fired its three regional leaders. Smaller fry are going away, net branches are going to get scoured, and NFI isn't one and has tightened up compliance...and has no net branches.
Unless inflation bolts out of the barn, the cycle will turn. Do you really want to press this bet? Wouldn't you make better money chasing PD or the Bombay Index?
Any sector average has outliers both high and low. That's what makes an average.
I think divvy is safe. Possible litigation overhang but if connection made between any journalist and short seller that might get baked into a defense.
Buy here? I am so damn cheap I'd say stagger in case we back and fill but right now market is looking past rate hikes yet pricing in strong returns and there is a big short interest. This may be the bottom in this cyclical space. I would stick with larger, more experienced players over recent entrants although there may be more value (P to Book) in those newer entrants, but you eat more risk as well.
I would watch your eggs though. If we hike past 5.25% I don't know what the market will do as a whole. I would watch "reported accumulated loss" column on the bond investor doc on their website each month. That measure losses to the company after mortgage insurance pays off.