Retiredinsobe

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    • Tue Oct 23rd 17:56 PM | Rating: 0 0
      Commented on:
      Downey Financial Longs Caught in Game of 'Chicken'
      After reading DSL's 2Q07 10-Q in August, I shorted the stock.

      Here are the best parts of the 2Q07 10-Q.

      "Total loans and mortgage-backed securities, including those we hold for sale, declined $818 million during the current quarter to a total of $12.4 billion or 83.2% of total assets at June 30, 2007."

      "As set forth in the following table, $8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years."

      From the table on page 52 of the PDF (numbered page 34 in the 10-Q): $9.3B of their option ARMs had a balance greater than the original loan amount. Over the last year, they have increased their "fixed-rate" loans; however, these are mostly interest-only for the first 3-5 years. There are $1.6B of these.

      "We have other credit risk elements within our real estate loans held for investment besides loans subject to negative amortization or loans with interest-only payments. At June 30, 2007, these other credit risks included:

       89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties;

       82% of our residential one-to-four unit loans were underwritten based on borrower stated income and asset verification and an additional 8% were underwritten with no verification of either borrower income or assets; and

       the loans are relatively new and unseasoned, as 11% of our residential one-to-four unit loans were originated in 2007, with an additional 28% originated in 2006 and 33% in 2005."

      Their weighted average FICO score for their residential loans is 695. They break it down. 29% is below 660.

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    • Sat Sep 8th 07:50 AM | Rating: 0 0
      Commented on:
      Negative Amortization and Interest Only: The Next Mortgage Bomb?
      The following are some applicable excerpts from Downey Financial (DSL)'s recent 10-Q:

      $8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years.
      . . .
      89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties.

      
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