If you are new to this blog (which should be everybody since it is a new blog), I urge you to read my musings on the homebuilders in their entirety. They are now starting to show real stress that may accurately show the future of things to come for other parts of the economy tied to real estate. As a recap:
- Thoughts on the US Publicly Traded Homebuilders
- Correction, and further thoughts on the topic
- Who else is in trouble?
- As was predicted in the homebuilders annual reports, and this blog...
- The "Real" Trend in US Housing Prices...
- Centex is trying hard to move inventory
- Centex and Beazer show evidence of credit crunch dismantling their business models
These are builder specific posts, excluding the posts on real estate, etc. The reason I listed them is because the pattern is now becoming much clearer. As was stated in the posts above, the builders are(were) some of the largest sub-prime lenders in the country, and they have been very aggressive in their practices lately in a desperate attempt to move overvalued inventory. This has led to sloppier than industry standard underwriting (which is pretty sloppy), which leads to larger than standard losses (which are pretty large).
For example in the case of Centex:
- 60+ day Delinquency: 13.50%
- Expected Remaining Losses (% of Current Balance of outstanding mortgages): 6.61%
For those that think that overvalued real estate is causing the homebuilders a problem, imagine what some of these highly delinquent, unsalable mortgages will do to earnings over the next few quarters. This was foreseen and outlined in detail last quarter in the posts listed above for those who want a background on my thoughts on the matter. As a reminder, last year Lennar wrote 45,800 mortgage totalling $10.5 billion. Pulte relies on internal mortgage origination for 92% of its home sales. Centex is offering up to 56% off of its homes plus mortgage rate discounts, Hovnanian offering similar deals, showing to what extent they are willing to go to clear inventory. Just imagine how creative they were willing to get with your mortgage app to get you approved...
Fitch Ratings-New York-07 September 2007: Fitch Ratings has taken the following rating actions on Centex Home Equity Loan asset-backed certificates. Affirmations total $873.5 million. Break Loss percentages (BL) and Loss Coverage Ratios (LCR) for each class are included with the rating actions as follows:
--$81.1 million class A affirmed at 'AAA' (BL: 81.18, LCR: 12.84);
--$41.2 million class M-1 affirmed at 'AA+' (BL: 64.48, LCR: 10.20);
--$37 million class M-2 affirmed at 'AA' (BL: 51.99, LCR: 8.22);
--$20.4 million class M-3 affirmed at 'AA-' (BL: 30.45, LCR: 4.82);
--$18 million class M-4 affirmed at 'A+' (BL: 26.96, LCR: 4.26);
--$17.6 million class M-5 affirmed at 'A' (BL: 23.73, LCR: 3.75);
--$16.7 million class M-6 affirmed at 'A-' (BL: 20.50, LCR: 3.24);
--$14.3 million class M-7 affirmed at 'BBB+' (BL: 17.81, LCR: 2.82);
--$13 million class B affirmed at 'BBB' (BL: 15.79, LCR: 2.5).
--Originators: Centex (100%);
--60+ day Delinquency: 13.50%;
--Realized Losses to date (% of Original Balance): 0.57%;
--Expected Remaining Losses (% of Current Balance): 6.32%;
--Cumulative Expected Losses (% of Original Balance): 2.56%.
--$511 million class A affirmed at 'AAA' (BL: 36.50, LCR: 5.52);
--$35.5 million class M-1 affirmed at 'AA+' (BL: 29.21, LCR: 4.42);
--$32.5 million class M-2 affirmed at 'AA' (BL: 26.18, LCR: 3.96);
--$18.5 million class M-3 affirmed at 'AA-' (BL: 24.12, LCR: 3.65);
--$17 million class M-4 affirmed at 'A+' (BL: 21.77, LCR: 3.29);
--$16 million class M-5 affirmed at 'A' (BL: 19.53, LCR: 2.95);
--$14.5 million class M-6 affirmed at 'A-' (BL: 17.44, LCR: 2.64);
--$13 million class M-7 affirmed at 'BBB+' (BL: 15.49, LCR: 2.34);
--$12.5 million class M-8 affirmed at 'BBB' (BL: 13.44, LCR: 2.03);
--$8.5 million class M-9 affirmed at 'BBB-' (BL: 10.02, LCR: 1.52);
--$6.5 million class M-10 affirmed at 'BB+' (BL: 9.20, LCR: 1.39);
--$10 million class M-11 affirmed at 'BB' (BL: 8.54, LCR: 1.29).
--Originators: Centex (100%);
--60+ day Delinquency: 7.79%;
--Realized Losses to date (% of Original Balance): 0.03%;
--Expected Remaining Losses (% of Current Balance): 6.61%;
--Cumulative Expected Losses (% of Original Balance): 4.76%.
These transactions were placed on 'Under Analysis' on Aug. 21, 2007. The rating actions are based on changes that Fitch has made to its subprime loss forecasting assumptions. The updated assumptions better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness. Additional details are available in the following research, also available at 'www.fitchratings.com':
--'Downgrade Criteria for Recent Vintage U.S. Subprime RMBS' (Aug. 8, 2007);
--'U.S. Subprime RMBS/HEL Upgrade/Downgrade Criteria' (June 12 ,2007).
All of Fitch's ratings criteria for US subprime RMBS, along with a list of deals currently under analysis, are available at www.fitchratings.com/smartview.
Contact: Jack Lohrs +1-212-908-0290 or Vincent Barberio +1-212-908-0505, New York.
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278.