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WaMu's Suspect Mortgage Pool

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How did no-documentation loans receive AAA rating?

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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 for January. The February update was WaMu Alt-A Pool Revisited followed by the March update, WaMu Alt-A Pool Deteriorates Further. Now I have the April update.

Click here for the WMALT 2007-0C1 April Picture.

January Pool Stats

  • 19.3% 60 day delinquent or worse
  • 13.15% Foreclosure
  • 1.83% Real Estate Owned (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 documentation 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 no-documentation loans have been rated AAA.

Thanks to "CS" and "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 Delinquencies

  • Pool balance is left scale (red)
  • Delinquencies 60 day or worse is right scale (green)
  • Delinquencies 90 day or worse is right scale (blue)



Click to enlarge


REOs vs. Foreclosures

Click to enlarge


Thank you 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 it 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. The 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 no-documentation loan Alt-A pools in California and Florida. Furthermore, I believe all Alt-A pools (because that is where the bulk of the no-documentation 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?

Prof. Sedacca commented, "Buried in the $2 billion investment BAC made in CFC was the fact that BAC has 'last look' to buy the company. That was the main reason for that deal, methinks. 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."

Indeed. And if Bank of America is investigating Countrywide Alt-A pools that look anything like the above, it can't 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.

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