WaMu's Suspect Mortgage Pool

I have been tracking a particular Washington Mutual (WM) Alt-A mortgage pool for several months. The pool is known as WMALT 2007-0C1.

In Evidence of "Walking Away" In WaMu Mortgage Pool, I wrote about data January.
The February update was WaMu Alt-A Pool Revisited.
The March update was called WaMu Alt-A Pool Deteriorates Further.

This is the April Update

WMALT 2007-0C1 April Picture



click on chart for sharper image

January Pool Stats

• 19.3% 60 day delinquent or worse
• 13.15% Foreclosure
• 1.83% REO

February Pool Stats

• 22.69% 60 day delinquent or worse
• 11.62% Foreclosure
• 3.56% REO

March Pool Stats

• 25.3% 60 day delinquent or worse
• 13.35% Foreclosure
• 4.44% REO

April Pool Stats

• 29.07% 60 day delinquent or worse
• 13.87% Foreclosure
• 6.21% REO

Note the above progression. This cesspool from May of 2007, was 92.6% originally rated AAA, even though loans had full doc only 11% of the time. In one year, the pool was 29.07% 60-day delinquent or worse. Of that, 13.87% is in foreclosure and 6.21% is bank owned real estate.

The problem should be clear. In no way shape or form, should any package of liar loans been rated AAA.

Thanks to "CS", "YV" and several others for emailing me the latest chart. Chris Puplava at Financial Sense went one further and sent in the following charts to consider.

Pool Balance vs. 60 Day or worse DelinquenciesPool balance is left scale (red)
Delinquencies 60 day or worse is right scale (green)
Delinquencies 90 day or worse is right scale (blue)



click on chart for sharper image

REOs vs. Foreclosures



click on chart for sharper image

Thanks for those charts Chris!

REOs Rising Faster Than Foreclosures

The above image is particularly interesting. Are banks so loaded to the gills in REOs they are reluctant to start more foreclosures? If so, people are now living in their homes for free. There have been various media reports of this happening.

As bad as that sounds, from a bank perspective that is better than having a house sit there to become infested by vermin, rats, bees, mold etc. I spoke on the phone with Mike Morgan this morning and he tells me the latter is happening right now in Florida. Some homes are so infested with mold they are a health hazard and have to be bulldozed down. Total loss to the lender is 100%, perhaps greater if they have to pay to clean up the mess!

This Alt-A pool may not be indicative of all Alt-A pools but it likely indicative of what is happening to liar loan Alt-A pools in California and Florida. Furthermore, I believe all Alt-A pools (because that is where the bulk of the liar loans and option ARMs are hidden), are extremely suspect.

Just yesterday it was reported that Bank of America (BAC) is reconsidering its deal with Countrywide Financial (CFC). I talked about this yesterday in Countrywide Shares Worthless?

Professor Sedacca commented "Buried in the $2 billion investment Bank of America (BAC) made in CFC was the fact that BAC has 'last look' to buy the company. That was the main reason for that deal, me thinks. So I imagine common shareholders get little if anything, preferred holders get potentially wiped out and some subordinated debt holders could get smoked as well. The same could be said for Washington Mutual(WM)."

Indeed. And if Bank of America is investigating Countrywide Alt-A pools that look anything like the above, they cannot possibly be liking what they see.

Meanwhile Bernanke Urges Action to Slow Foreclosures. Inquiring minds may wish to open that link to see a series of charts from Bernanke's perspective. The Fed is clearly spooked, and rightfully so. However, the Fed is powerless to halt changing attitudes towards walking away and it is a moral hazard to even attempt to do so at taxpayer expense.

Comments

[dcxavier]

As bad as this securitization appears, I take issue with one of your statements..."The problem should be clear. In no way shape or form, should any package of liar loans been rated AAA."

The A-1 tranche is typically 50% of the entire securitization. It has first dibs on all interest and principal payments. Because of that, it carries a low interest rate. I'm guessing that 30-40% of the interest collected goes to holders of the A-1. Since 70% of the loans are still viable, the A-1 is more than well covered. So are the next few tranches in line. The A-1 also gets the first 50% of the repaid principal. It appears that 5-10% of the mortgages have been closed out due to sale or foreclosure. All that principal has paid down owners of the A-1. In addition, these loans were written to about 80% LTV. So the house could take a 20% hit in value and not affect the securitization at all. ((Side note: Second mortgages written on these properties are where the absolute disaster is occurring.)) The 30% delinquent properties could be bulldozed at zero value like you said, and the A-1's and a couple other senior tranches would still be paid off in full.

The big issue in the securitizations are the mezzanine and B/C/D's. These were typically also rated AAA based on backward looking loss analysis. But when housing prices were in the bubble, a buyer could default on the property immediately, and the bank come out whole because the value of the property rose so much in the interim. Heck, defaulting homeowners sometimes made money reselling the house. Those were the figures the so-called analysts used to rate the securitizations. That isn't happening any more.

[saml]

So will Citimortgage writeoff part of my mortgage?