Monday, February 1, 2010

Mortgage Delinquencies -- A real hockey stick graph

Mortgage delinquencies keep rising nationwide as reported by Freddie Mac & Fannie Mae (via Calculatedrisk blog)

Until the delinquency rate starts to fall I seriously doubt home prices or new home construction will do anything beyond stumble along.

One hidden benefit from all the loans going bad is pre payment speeds have sped up for various mortgage backed securities.  I have noticed a bump in principal paydowns beyond normal and I think its all the mortgages being purchased out of pools by the GSE's.  Considering I own a wad of leveraged inverse floaters at below par I'm happy with that.


  1. I read some "chicken little" comment on SeekingAlpha the other day that "the Fed's next huge problem is Pre-payments" - to which I nearly fell out of my chair laughing.

    The Fed scoops up a bunch of illiquid/toxic assets that nobody wants and all of a sudden cash is coming in in the form of pre-payments... and this is supposed to be a bad thing?

    Again, I laughed my fool head off.

  2. If 'chicken little' is speaking of the normal principal paydowns associated with a mortgage backed security, I find that to be the only redeeming factor in the Fed's attempt to add liquidity via Freddie and Fannie MBS. [lets ignore how it is skewing the housing market right now, but that's their plan, right?] The principal paydowns are slower in the beginning and are probably a very small amount (relatively) right now.

    It will also happen gradually and automatically with no action required by the Fed. This would _hopefully_ mitigate any market dislocation versus the sellling in open market of a Fed held security.

    But yea, the Fed is getting thier money back and this is a bad thing???