Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:502 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

Read more

The Transformation of Television in Amer…

21-03-2017 Hits:880 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

Read more

It's the Real Estate Crash That I Warned…

20-03-2017 Hits:1306 BoomBustBlog Reggie Middleton

It's the Real Estate Crash That I Warned You About (again)

I've issued several warnings late last year warning of the real estate bubble peaking and popping. I feel I'm especially qualified to do such since I quite accurately called the...

Read more

When It Comes Time To Show and Prove, Eq…

20-03-2017 Hits:1130 BoomBustBlog Reggie Middleton

When It Comes Time To Show and Prove, Equity Markets May Drop Hard

The markets have gotten euphoric since the Trump election, apparently because someone believed what he was selling. Take a look at the broad market jump (powered greatly by the bank...

Read more

So, Brexit Is Now Almost Official. Is Th…

20-03-2017 Hits:503 BoomBustBlog Reggie Middleton

Note: All downloadable legacy content is for subscribers only. We currently have a sale for $11 per month for basic access. Professional subscribers are now evevated to have direct access...

Read more

In Less Than Two Weeks, Another Bitcoin …

17-03-2017 Hits:1920 BoomBustBlog Reggie Middleton

In Less Than Two Weeks, Another Bitcoin ETF Faces SEC Deadline - It's Denial Is NOT A Bearish Event

LedgerX's "SOLIDX BITCOIN TRUST" has an approval deadline this March 30th, 2017.If it is approved, Bitcoin is due for one hell of a bump, but...  

Read more

The Fed Raises Rates While Still Baby Fe…

17-03-2017 Hits:1765 BoomBustBlog Reggie Middleton

The Fed Raises Rates While Still Baby Feeding the MBS Market With Billions in Monthly Purchases

The Fed has raised rates, officially making real what was mere signaling of the end of its expansionary era... Or is it? You see, from a practical perspective, QE is...

Read more

A Bitcoin ETF or Similar Regulated Insti…

16-03-2017 Hits:2300 BoomBustBlog Reggie Middleton

A Bitcoin ETF or Similar Regulated Institutional Vehicle is a Forgone Conclusion - What Happens Next?

Someone with over 53 years on Wall Street sent me this article from Lex of the Financial Times...

Read more

Why the Winelvoss Bitcoin ETF Was Reject…

13-03-2017 Hits:3114 BoomBustBlog Reggie Middleton

Why the Winelvoss Bitcoin ETF Was Rejected and How to Create a Regulated Vehicle That Passes Muster

 The Winkelvoss ETF application was rejected by the SEC, and bitcoin dropped about 20% in price. I repetitively warned those that followed me that a very low risk buying opportunity...

Read more

Trump Calls Obama's Policies On Russia W…

10-03-2017 Hits:2803 BoomBustBlog Reggie Middleton

 Donald Trump's recent Tweet discusses how Russia has gotten stronger at the behest of President Obama.   For eight years Russia "ran over" President Obama, got stronger and stronger, picked-off Crimea and...

Read more

SNAP's Greed Derived Self-Inflicted Woun…

08-03-2017 Hits:3861 BoomBustBlog Reggie Middleton

SNAP's Greed Derived Self-Inflicted Wounds Continue to Manifest

The day before the SNAP IPO, I penned "Goldman Sachs & Morgan Stanley Pull Off the Heist of the Decade, Bends Over Those Who Don't Read BoomBustBlog". Despite being rather...

Read more

Bitcoin Is Reaching the Point of No Retu…

08-03-2017 Hits:3591 BoomBustBlog Reggie Middleton

Bitcoin Is Reaching the Point of No Return - Buy Side Should Take Note

Many bitcoin aficionados are waiting with baited breath as the SEC is to announce by this Friday whether they will approve the first registered bitcoin ETF. This is not the...

Read more
Here are some very interesting facts on the latest trend in Alt-a mortgages that have been in the news as of late. The following charts were culled from my mortgage default model which was built primarily from date gathered from the FDIC and the NY Fed.

  As you can see, the current trend still has subprime at a significantly higher charge off, delinquency and foreclosure rate than Alt-A loans.


The issue is that the Alt-A loans are usually written for a much larger amount than the subprime loans, hence the losses from Alt-A shall be much larger.


  Let's delve deeper into the Alt-A market... Click any of the graphs below to enlarge.


As you can see, Alt-A loans are a very small minority of the loan market, but since they are written on considerbly larger principals than subprimes, the potential losses will hit harder. In addition, they peaked in popularity at the exact top of the housing bubble...


 See"If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...", and in particular the shape of the bubble peak.


The average origination of the Alt-A loan in the use sits right atop that crest. You see where we have went from there...


  As if the Case Shiller graph doesn't drive this point home hard enough, the average and mean CLTVs for Alt-A loans AT ORIGINATION hover around 82% to 93%. Those are loans written at the top of the bubble. What do you think happened a few years later???


This is the state of Alt-A loans as of November! Nearly all of them are underwater. Some are totally sunk! We're talking 150%, 175% LTVs. and that is statewide, not anecdotal high end cases!!! If you are not familiar with Alt-A loans, they have a subset known as option ARMs that allow you to pay less than the amount necessary to amortize the loan, resulting in negative amortization. That means as time goes on, your outstanding principal gets bigger, not smaller. Many loans have a cap on this neg am amount wherein if it hits a certain level, the loan goes fully amortizing. What are the chances of this happening??? Well, you tell me.


  California is such a strong contributory force to credit losses in the Alt-A category that it literally needs to be removed just to see what the other states are doing. Whoa!!!


This leads to a very important point. Exotic mortgage products were popular in CA and FL and NV becuase home prices outpaced rents and incomes. Home prices have come down, but they are still out of equilibrium with incomes, net assets, and rents. Unemployment is weigh up and household net worth is way down. Combine that with a dearth of available financing from the banks and the near total absence of loan exotica and there is only one way for house prices to travel. This fact has been masked and concealed by the Fed ZIRP policy, by trillions of dollars of securities purchases, primarily MBS, and by other ill-planned stimulus measures such as the $8k tax credit.

The chart below illustrates the seasonal ebbs of month to month price changes.  On a month to month basis, we see hills in the spring and summer and valleys in the fall and winter. During the onset of the bursting of the (first) bubble, this cycle was compressed, but was still there. and lasted throughout the bubble. With the onset of the government stimulus (ex. housing credits and MBS market manipulation), the peaks were significantly exacerbated. Now we are entering into the winter months again, and guess what's happening, as has happened nearly every winter cycle before. The only difference is that this dip is extraordinarily steep! I would also like to add that the month to month price changes coincide exactly with the S&P 500 move downward and upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If this relationship holds,,,, well you see what direction the month to month lines are going and how steep they are, don't you?


As you can see when we drill down into the month to month  numbers, the improvements either weaken significantly or disappear into numbers that show further declines - and this is in the face of government bubble blowing! Also, be aware that the Case Shiller index is a three month average that is lagged. So a leveling off of values from a previous increase actually means that material negative inputs have entered the equation. If the housing prices don't spike higher in November and December, expect the index to fall. As housing falls, it puts even more pressure on credit quality.


 This results in total risk to banks skyrocketing, despite many members of bank management saying that they believe things will peak in 2010. Every year since 2006, banks and home building management have proclaimed unsubstantiated optimism that flies in the face of what I have researched! Reference this excerpt from American Banker:

Over the past few months, Wells has been relatively upbeat about the portfolio. Chairman and Chief Executive John Stumpf said at a Goldman Sachs conference last month that it has been performing better than expected.

"I don't think they would have made the statements they did unless you saw continued improvement," said Joe Morford, an analyst at RBC Capital Markets.

Much of this optimism is a function of the banking sector's gradually improving expectations for consumer credit losses. Wells now expects them to peak before midyear.

That would allow the bank to take some accounting gains on the impaired portion of a major portfolio.

After writedowns, modifications and repayments, the Pick-a-Pay portfolio's carrying value is down to $88 billion. And negative amortization, the bete noire of the portfolio, has been dropping.

In Wells' prerecorded third-quarter earnings call in October, Howard Atkins, Wells' chief financial officer, raised the prospect that, beginning in the fourth quarter, Wells could begin "recapturing a portion of the life-of-loan purchase accounting marks" it took on the impaired portfolio.

Bush and other analysts said this quarter is likely too soon for Wells to "declare victory" on Pick-a-Pay — because of both macro concerns about the housing market and the difficulty of predicting how the $50 billion unimpaired portion of the portfolio will perform.

While those loans are still performing according to plan, she said, "If they're over-reserved, they're going to stay over-reserved over the next couple quarters."
I remind my subscribers to keep in mind what Wells has in their portfolio and how that class of assets have been performing according to the NY Fed and the FDIC.

pdf  WFC Investment Note 22 May 09 - Pro 2009-05-27 01:56:54 853.53 Kb

pdf  WFC Investment Note 22 May 09 - Retail 2009-05-27 01:55:50 554.15 Kb

pdf  WFC Off Balance Sheet Exposure 2009-10-19 04:25:53 258.77 Kb

pdf  WFC Research Note Sep 2009 2009-09-30 13:01:30 281.29 Kb

All subsribers can download the data that generated these graphs here:

File Icon Alt-A loans and credit trends - December 2009

Non-subscribers can view my historical analysis of Wells here: 

  1. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo 
  2. Doo-Doo bank drill down, part 1 - Wells Fargo 
  3. How hard does CA hit the 2nd liens? 
  4. Wells Fargo reports in a few hours and I wonder how forthcoming they will be with their credit losse 
  5. I've Been Warning About Wells Fargo Since Spring of '08 - The Doo Doo 


I see Alt-A losses from banks being very, very significant. There is absolutely no way the Fed can allow rates to increase without literally destorying both those that wrote and hold these products and the mortgagees that need to pay them!


So banks are doing well. Of course they are! FASB has allowed them to absolutely ignore everything in all of the charts you see above.


For more on this, see "How Regulatory Capture Turns Doo Doo Deadly". 

Other banks to look at with suspect portfolios:

JP Morgan Chase

(Free Preview) pdf  JPM Public Excerpt of Forensic Analysis Subscription 2009-09-22 14:33:53 1.51 Mb

pdf  JPM Forensic Report (092209) Final- Retail 2009-09-24 03:12:17 130.93 Kb

pdf  JPM Report (092209) Final - Professional 2009-09-24 03:13:31 550.72 Kb

Bank of America


pdf  BAC Swap exposure_011009 2009-10-15 01:02:21 279.76 Kb

PNC Bank

PNC Report 050508 revised PNC Report 050508 revised 2008-08-30 06:38:42 711.95 Kb

spreadsheet  PNC Report_update final - Pro 2008-10-15 13:21:22 590.98 Kb

spreadsheet  PNC Report_update final - Retail 2008-10-15 13:21:38 337.21 Kb

pdf  PNC SCAP Results recast using FDIC and NY Fed data - Pro 2009-05-15 07:31:21 455.37 Kb

pdf  PNC SCAP Results recast using FDIC and NY Fed data - Retail 2009-05-15 07:30:25 395.18 Kb

spreadsheet  PNC Simulated Government Stress Test 2009-05-01 13:09:19 664.87 Kb

pdf  PNC Stress Test Pro 2009-04-13 02:10:17 3.11 Mb

spreadsheet  PNC Stress Test Retail 2009-04-13 02:11:08 323.51 Kb

pdf  PNC Stress Test update - Professional 2009-04-21 15:55:56 3.00 Mb

pdf  PNC Stress Test update - Retail 2009-04-21 15:53:52 777.50 Kb

pdf  PNC stress test write up - public lite 2009-07-27 02:37:11 995.30 Kb

Sun Trust

pdf  STI update 2009-09-03 06:33:371.08 Mb

Sun Trust Bank Report Sun Trust Bank Report 2008-08-30 06:39:22 391.89 Kb

spreadsheet  Sun Trust Bank Stress Test Scenario Analysis – Government Simulation 2009-04-30 03:43:18 665.82 Kb

pdf  Sun Trust Banks Simulated Government Stress Test 2009-05-05 11:37:13 1016.17 Kb

The Government Stress Test

image  The Supervisory Capital Assessment Program: Design and Implementation 2009-04-30 02:16:44 286.90 Kb

Wells Fargo

pdf  WFC Investment Note 22 May 09 - Pro 2009-05-27 01:56:54 853.53 Kb

pdf  WFC Investment Note 22 May 09 - Retail 2009-05-27 01:55:50 554.15 Kb

pdf  WFC Off Balance Sheet Exposure 2009-10-19 04:25:53 258.77 Kb

pdf  WFC Research Note Sep 2009 2009-09-30 13:01:30 281.29 Kb


All subsribers can download the data that generated these graphs here:File Icon Alt-A loans and credit trends - December 2009.

Click here to subscribe.  The sheet contains a LOT of data to slice and dice, and is broken down by state, so you can actually back into your favorite bank's propsective portfolio performance if they give a geographic break up, like Wells. See the following screen shots. Click to enlarge...