Five Key Quotes from MBIA on the Monoline Industry

Remember the good old days when subprime was our biggest problem? Monoline insurers still do. From MBIA Inc.’s (MBI) Q308 conference call:

With speculators gone, delinquencies should decline: 

We found that as housing prices decline from minus 5% in Q407 to approximately minus 12% in Q108, the percentage of loans have became delinquent, also increased from 5% to over 15%. However, as housing prices continue to decline in Q208, the percentage of loans are rolled into delinquencies decreased.

We believe this reduction in sensitivity to home price declines may have occurred because those borrowers who do not really intend to keep a home as a primary residence defaulted when home prices declined significantly and at this point the borrowers left in our pools are the ones who would be more likely to wish to continue staying in their homes. This could well indicate the change in future losses. 

Alt-A: 

We are closely monitoring this $3.5 billion Alt-A portfolio, because of the increases in Alt-A delinquencies… We did not insure any transactions that contain pay option ARM loans, which many consider the most volatile loan type in the space… We are seeing loss severities less than 35%, so we remain cautiously optimistic on this portfolio as well.

A little dig at ratings agencies: 

We have clearly not been able to clear the rating agencies moving goalposts for AAA ratings. 

Handing out blame for lenders too: 

Negligent and deficient lending standards have played an extremely large role in our RMBS losses. We have officially initiated legal action against the two largest mortgage lenders of our second lien RMBS exposure… Approximately 74% of the total reserves we have taken on the second lien book are associated with transactions with Countrywide (BAC) and ResCap (GM) which are part of the litigation we commenced…

The majority of government programs and private bank initiative being pursued are currently concentrated on first lien… Loan modifications… appear to be very low for our second liens. Consequently, we are experiencing elevated levels of monthly loss volatility… We believe it will likely continue over the next quarter. 

Still, stuck between a rock and a hard place: 

Perversely, the more favorable view the market has of our credit quality, the more negative will the mark-to-market become.