Credit market

Articles on the mortgage and credit markets. Credit market dysfunction played an enormous role in the housing bubble and, as such, used to be a fairly big focus of this site. At this point, however, the topic has been pretty thoroughly exposed even in the mainstream media and blogs such as Calculated Risk and HousingWire cover the credit markets in a much more thorough manner than I could. For that reason, I have shifted my focus to the aftermath of the credit bubble as it pertains specifically to housing. More recent commentary is found either in the Housing Market or topics.

Ramsey Su: Has Real Estate Bottomed?

Submitted by Rich Toscano on August 7, 2009 - 7:40am

My old pal and foreclosure guru Ramsey has penned another insightful missive that he was kind enough to let me post here on Piggington. I'll let the essay speak for itself, but I will add in regard to the conclusion that I think this shows why the Fed is trapped in the monetization game at this point (and why there is little chance that they will stop until forced to do so). Read on...

Guest Commentary: Ramsey on the Big Mortgage Bailout

Submitted by Rich Toscano on December 10, 2007 - 9:13pm

My old friend Ramsey Su, foreclosure expert and keen observer of the ongoing mortgage trainwreck, is back with another guest commentary. His latest email missive puts the infamous mortgage freeze in his crosshairs, and he's agreed to let me reprint it here. Read on, and if you like this you might enjoy Ramsey's prior commentary here, here, and here (the first of these, a prescient piece on the impact of foreclosures written in February, is one of the most widely read articles ever to appear on the Econo-Almanac).

Ramsey's piece follows...

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New Century Article, Time Off

Submitted by Rich Toscano on May 7, 2007 - 12:54pm

A couple of quick notes:

First, the Washington Post article on New Century is an absolute must-read. We all suspected this type of stuff was going on, but it's still really quite something to read about how blatant it all was.

Second, the missus and I will be taking a two-week vacation starting next week. There will be a couple more articles between now and then but after that nothing until June.

April housing data is up next.

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Subprime Soup

Submitted by Rich Toscano on March 6, 2007 - 9:53am

Confused by the alphabet soup of mortgage- and credit derivative-related acronyms? Seek comfort in this concise and simple explanation of the securitization process, courtsey of The Economist:

First, mortgage loans are pooled and used as security for bonds known as residential mortgage-backed securities, or RMBS. In one sense, this is good news; it takes the loans off the balance sheets of the banks that made them and thus disperses risk.

Most investors, however, want to buy the safest portions of the RMBS; those awarded the top AAA rating. These account for some 90% of the RMBS by value.

But someone has to buy the risky bit of the mortgage pool. And those buyers are the issuers of collateralised debt obligations, or CDOs. Such issuers buy portfolios of bonds and loans, and then divide them into tranches, according to risk. They sell those tranches to customers eager to own a diversified bond portfolio.

Nice work, Brits. How about another paragraph for good measure:

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Revisiting CDS-Land

Submitted by Rich Toscano on February 23, 2007 - 12:44pm

A while back I wrote about the rather sudden increase in the cost of credit insurance for on low-rated subprime MBS tranches. The net effect was that the cost of credit protection for these mortgage-backed securities had increased by 25% in just a week.

The below chart shows the same index of low-ratest subprime CDS tranches we looked at earlier:

ABX-HE-BBB- 06-2

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Subprime Stabilizes

Submitted by Rich Toscano on December 19, 2006 - 9:44am

Let's check back in with the denizens of EZ-Ville for a look at how things are going after the early-December shakeout.

For starters, I wish to address one poster's comment to assert that I feel completely justified in having called the decline in the ABX "disorderly." The falling-off-a-cliff section of the graph represents a 25% increase in the cost of insuring subprime mortgage backed securities (from 316 basis points to 395 basis points, per this Dow Jones piece among others) in precisely one week. That doesn't seem very orderly to me.

That said, subprime CDS index price managed to stabilize after the decline and have since begun to ratchet back upwards, as the red line indicates:

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Trouble in EZ-ville

Submitted by Rich Toscano on December 12, 2006 - 9:28am

Last week, subprime lenders Sebring Capital Partners and the ironically named Ownit Mortgage Solutions abruptly bit the dust due to waning demand for subprime asset backed securities.

Just how much has demand declined? Maybe a lot. The ABX indices measure the price of credit swaps for various grades of recently-issued mortgage-backed securities. Last week, an orderly decline in the subprime ABX index turned disorderly, as indicated by the red line on this chart from the people who track the index:

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Is Inflation Dead?

Submitted by Rich Toscano on September 26, 2006 - 10:14am

Sorry about the radio silence this past week... I've been real busy getting the new portfolio management/financial advisory gig* off the ground**. What writing I did get a chance to do over at the concerned the Amaranth blowup, not housing, so I didn't link to it from here.

Now I am compelled to come out of hiding because of bond yields.

I made note a while back when the yield on the 10-year Treasury Note finally crossed the elusive 5% mark. The 10-year yield eventually rose to 5.24%, but as the below chart (courtesy of shows, it went into freefall soon thereafter.

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August Credit Market Update

Submitted by Rich Toscano on September 1, 2006 - 10:34am

30-year fixed rates have dropped like a rock since late July:

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60 Days to Tighter Lending?

Submitted by Rich Toscano on August 29, 2006 - 12:41pm

Fellow blogger Calculated Risk, who has tenaciously followed the developments of the federal regulation on non-traditional mortgages, tells us that the guidelines will be put in place within 60 days.

For those who are unfamiliar, I wrote a piece on the new lending guidelines back in December when a draft version was released.

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Ruh-Roh, Raggy!

Submitted by Rich Toscano on July 4, 2006 - 3:41pm how Scooby-Doo might react upon reading about an impending rate hike by the Bank of Japan. Assuming, that is, that Scooby took an interest in global liquidity conditions instead of just constantly getting high.

Rampant E-Z mortgage lending during the first year-and-a-half of Fed tightening posed a seeming puzzle. But the answer to the puzzle lay outside our borders: in this age of globalized capital markets, tightness by one central bank could be offset by looseness of another. And they don't come any looser than that Bank of Japan. The BOJ's ultra-low rate policy made it easy for financiers to borrow in Japan, lend to US homebuyers, and pocket the interest rate differential. It also encouraged yield-starved Japanese to lend their own money in a similar manner.

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Credit Market Report: May 2006

Submitted by Rich Toscano on June 6, 2006 - 10:16am

(Click here for an audio version of this article).

The upward surge in mortgage rates has continued, and as of now both fixed and adjustable mortgage rates are sitting atop their multi-year highs:

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Credit Market Report: April 2006

Submitted by Rich Toscano on April 24, 2006 - 11:16am

It's been an exciting month in the credit markets—that is, if you are the type of person who considers anything that happens in the credit markets "exciting." Sadly, I am just such a person, so without further ado let's have a look at everything that's happened since last month's report.

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Hello, 5%

Submitted by Rich Toscano on April 13, 2006 - 8:45pm

The 10-year Treasury yield just busted through 5% for the first time in almost 4 years. Is the global liquidity party finally starting to wind down? Whatever's going on, it bodes poorly for the housing bubble.

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Mortgage Guidelines Moving Forward

Submitted by Rich Toscano on March 29, 2006 - 6:03pm

You may recall that at the end of 2005, the OCC and friends released a proposed set of rather stringent lending guidelines. (See Is This the End of E-Z Credit? for a summary). The publication in question did not put guidelines into place, but rather explained the guidelines being discussed and requested comments from the banking community.

The draft rules didn't seem to scare anyone straight. Some lenders tightened up, but that seemed as much a symptom of credit conditions as anything. Meanwhile, in a desperate bid for more market share, some lenders have gotten even more risky since the document's original publication.

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