The Performance of Centex's Mortgage Originations, or CountryWide Redux, pt III

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:

1. Thoughts on the US Publicly Traded Homebuilders
2. Correction, and further thoughts on the topic
3. Who else is in trouble?
4. As was predicted in the homebuilders annual reports, and this blog...
5. The "Real" Trend in US Housing Prices...
6. Centex is trying hard to move inventory
7. 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:

Centex 2005-A
--$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).

Deal Summary
--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%.

Centex 2006-A
--$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).

Deal Summary
--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.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Comments

[Reggie]

Fitch Affirms 15 & Downgrades 5 Classes from 5 Centex Home Equity Loan Subprime Transactions
Fitch has taken rating actions on the following Centex (Nachrichten) Home Equity Loan mortgage pass-through certificates:

Centex 2001-B:

--Class A affirmed at 'AAA';

--Class M-1 affirmed at 'AA';

--Class M-2 affirmed at 'A';

--Class B downgraded to 'B' from 'BB+'.

Centex 2002-A Group 1

--Class A affirmed at 'AAA';

--Class MF-1 affirmed at 'AA';

--Class MF-2 affirmed at 'A';

--Class BF affirmed at 'BBB'.

Centex 2002-A Group 2

--Class AV affirmed at 'AAA';

--Class MV-1 affirmed at 'AA';

--Class MV-2 affirmed at 'A';

--Class BV downgraded to 'B-' from 'BBB', and assigned a Distressed Recovery (DR) rating of 'DR1'.

Centex 2002-C

--Class A affirmed at 'AAA';

--Class M-1 affirmed at 'AA';

--Class M-2 affirmed at 'A';

--Class B-1 downgraded to 'BB' from 'BBB';

--Class B-2 downgraded to 'B-' from 'BBB-', and assigned a DR rating of 'DR1'.

Centex 2002-D

--Class A affirmed at 'AAA';

--Class M-1 affirmed at 'AA';

--Class M-2 affirmed at 'A';

--Class B downgraded to 'B-' from 'BBB', and assigned a DR rating of 'DR1'.

The affirmations, affecting approximately $273.82 million of the outstanding balances, reflect a satisfactory relationship between credit enhancement (CE) and expected losses.

The downgrades, affecting approximately $25.6 million of the outstanding balances, are taken as a result of a deteriorating relationship between expected losses and CE. The affected series have experienced monthly losses that could not be covered by excess spread for at least four of the past five months. As a result, overcollateralization (OC) amounts are below their target values, with exception of the series 2002-A Group 1. Series 2001-B has incurred 5.37% loss to date and has 60+ delinquencies (including loans in foreclosure, bankruptcy and REO) of 11.96% versus OC of 2.19%. Series 2002-A Group 1, 2002-A Group 2, 2002-C and 2002-D have incurred losses to date of 4.66%, 3.80%, 3.89%, and 3.67%, respectively, and have 60+ delinquencies of 10.82%, 30.40%, 19.32%, and 18.65%, respectively, versus OC of 4%, 3.86%, 1.87%, and 3.11%.

The collateral of the above transactions consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties. As of the July distribution date, the above transactions are seasoned from 55 (2001-B) to 73 (2002-D) months. The pool factors (current mortgage loans outstanding as a percentage of the initial pool) range from 8% (2002-A Group 2) to 20% (2002-A Group 1). The loans are primarily serviced by Nationstar Mortgage LLC (formerly Centex Home Equity Company, LLC) (rated 'RPS2' by Fitch).

Further information regarding current delinquency, loss and CE statistics is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch will closely monitor this transaction. Further information regarding current delinquency, loss, and credit enhancement statistics is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's Distressed Recovery (DR) ratings, introduced in April 2006 across all sectors of structured finance, are designed to estimate recoveries on a forward-looking basis while taking into account the time value of money. For more information on Distressed Recovery ratings, see the full report ('Structured Finance Distressed Recovery Ratings'), which is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

[Jules Carney]

I have to say, you did a really nice job on explaining something that can be really tricky at times.
There are times that I struggle with wrapping my head around topics like the this, thank you for summing it up well.

Thanks for sharing

[ferragamo shoes]

the information of this post is very relevant
for what i am looking for, thank you so much for sharing this one

[quail hill homes for sale]

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.