I have received some feedback on the open source mortgage default model and data, and consequently took it offline due to the possibility that there may have been a material error (see The Truth About the Banks Has Been Released: the open source spreadhseet edition for the background). I have had it reviewed and reviewed it myself several times in light of the external inputs and am now putting a revised version back online for all to download, modify and or distribute. To give a quick background on what was going on, I received a notice of potential errors from a reader, along with suggestions on how he felt the model could be improved. I checked the SCAP Loss Assumptions file that he sent and although there is a difference of approach followed by us and the reader regarding estimation of loan loss rates, we have found both the methods acceptable.  The key difference is that the methodology (as explained below) followed by the contributor requires certain (additional) assumptions to be made while we wanted to refrain from making additional assumptions to remove any subjective biases and base our analysis using Fed's data to the maximum extent possible. For those that do not wish to read through this lengthy history, let it be known that the end result of the reader's input, and to a lesser extent our slightly tweaked methodology both resulted in a HIGHER  loss rates for mortgages (and consequently, the banks), not a lower one. So, if the original open source model was to be considered inaccurate, it would be leaning towards the optimistic side, which further drives home my point and thesis concerning the government's bogus stress tests and the current and future state of many US banks (see Welcome to the Big Bank Bamboozle! for the detailed story). Banks and asset managers have rallied enormously again, causing me to recheck my thesis and research, and yet still, I find absolutely no indication of my viewpoint being in error. This situation is similar to the dot.com era where many fundamental types tried to short the internet companies, and many got blown out of the water before the industry and the entire market collapsed. Past is not prologue, but I have been in this minimum vaue view of what I consider overvalued assets and markets when I sold off my real estate in 2006. Patience is hard to come by when you are facing against the wind, but I am not comfortable going against both the math and common sense.

One potential source of the perception of error was the inclusion of Alt-A ARMs resetting after 24 months (the 24+ month column in the Alt-A tab) in the cumulative loan loss rate section for 2 years. We feel that the exclusion of Alt-A ARM resetting after 24 months would underestimate loan losses during the actual 24 month period due to a variety of reasons, the least of which are the facts that once a certain LTV level is breached you will have early loan recasts (see The banking backdrop for 2009 where I warned of this at the beginning of the year) and the fact  that there will be some defaults before an initial reset is achieved.

Those who just want to dowload the model click here (Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb), otherwise read on to how I got to the second slight revision of the model.

 

I have received some feedback on the open source mortgage default model and data, and consequently took it offline due to the possibility that there may have been a material error (see The Truth About the Banks Has Been Released: the open source spreadhseet edition for the background). I have had it reviewed and reviewed it myself several times in light of the external inputs and am now putting a revised version back online for all to download, modify and or distribute. To give a quick background on what was going on, I received a notice of potential errors from a reader, along with suggestions on how he felt the model could be improved. I checked the SCAP Loss Assumptions file that he sent and although there is a difference of approach followed by us and the reader regarding estimation of loan loss rates, we have found both the methods acceptable.  The key difference is that the methodology (as explained below) followed by the contributor requires certain (additional) assumptions to be made while we wanted to refrain from making additional assumptions to remove any subjective biases and base our analysis using Fed's data to the maximum extent possible. For those that do not wish to read through this lengthy history, let it be known that the end result of the reader's input, and to a lesser extent our slightly tweaked methodology both resulted in a HIGHER  loss rates for mortgages (and consequently, the banks), not a lower one. So, if the original open source model was to be considered inaccurate, it would be leaning towards the optimistic side, which further drives home my point and thesis concerning the government's bogus stress tests and the current and future state of many US banks (see Welcome to the Big Bank Bamboozle! for the detailed story). Banks and asset managers have rallied enormously again, causing me to recheck my thesis and research, and yet still, I find absolutely no indication of my viewpoint being in error. This situation is similar to the dot.com era where many fundamental types tried to short the internet companies, and many got blown out of the water before the industry and the entire market collapsed. Past is not prologue, but I have been in this minimum vaue view of what I consider overvalued assets and markets when I sold off my real estate in 2006. Patience is hard to come by when you are facing against the wind, but I am not comfortable going against both the math and common sense.

One potential source of the perception of error was the inclusion of Alt-A ARMs resetting after 24 months (the 24+ month column in the Alt-A tab) in the cumulative loan loss rate section for 2 years. We feel that the exclusion of Alt-A ARM resetting after 24 months would underestimate loan losses during the actual 24 month period due to a variety of reasons, the least of which are the facts that once a certain LTV level is breached you will have early loan recasts (see The banking backdrop for 2009 where I warned of this at the beginning of the year) and the fact  that there will be some defaults before an initial reset is achieved.

Those who just want to dowload the model click here (Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb), otherwise read on to how I got to the second slight revision of the model.

 

Thursday, 14 May 2009 20:00

The Real Stress Test Results

Interesting subscriber content available for download. These are the PNC stress tests utilizing the unbiased government data sourced from the NY Fed and the FDIC, as well as other private sources. A very big difference from what was proffered through the media:

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

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

Pro and institutional subscribers, please take note of the extended schedules and exposures segregated by geography AND asset class. This is good stuff!

See Welcome to the Big Bank Bamboozle! and The Truth About the Banks Has Been Released: the open source spreadhseet edition for background on the data set used for this analysis. I will release the "real" results for WFC, STI, GS and MS next, then embark on a discovery tour of companies that are about to go bump against the massive upcoming refinance wall. 

I am also analyzing where we are now, in comparison to other bull and bear rallies in the past, in an attempt to gain the depth, breadth and direction of the next major, or multitude of minor runs and rallies.

 

Thursday, 14 May 2009 20:00

The Real Stress Test Results

Interesting subscriber content available for download. These are the PNC stress tests utilizing the unbiased government data sourced from the NY Fed and the FDIC, as well as other private sources. A very big difference from what was proffered through the media:

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

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

Pro and institutional subscribers, please take note of the extended schedules and exposures segregated by geography AND asset class. This is good stuff!

See Welcome to the Big Bank Bamboozle! and The Truth About the Banks Has Been Released: the open source spreadhseet edition for background on the data set used for this analysis. I will release the "real" results for WFC, STI, GS and MS next, then embark on a discovery tour of companies that are about to go bump against the massive upcoming refinance wall. 

I am also analyzing where we are now, in comparison to other bull and bear rallies in the past, in an attempt to gain the depth, breadth and direction of the next major, or multitude of minor runs and rallies.

 

I have fulfilled my promise to release the information and data that I sourced from the NY Fed and the FDIC web sites. It is complete, and is left open so you can run your own calculations, studies and assumptions. Feel free to pass it around as well. It is not a small spreadsheet, so you may need to some time to parse through it: Revised SCAP Assumptions Public Open Source Version Morgtage Losses, Defaults & Delinquincies for Banks: Public Open Source Version 2009-05-14 13:30:12 1.16 Mb. Note: at least one material typographical error was found in this spreadsheet, thus I have taken it offline until Monday until I can have it looked into. The effiicacy of the open source model, eh?

The full report, complete with sources and methodology is available here, free of charge. I simply ask that you forward it to your local congressman/woman and/or favorite media personality. The Truth shall set you free (or get you locked up, depending upon which side of the Truth you are on): BoomBustBlog.com's Realistic Recast of SCAP BoomBustBlog.com's Realistic Recast of SCAP 2009-05-12 14:52:09

Any bank or government official who significantly disagrees with the conclusion enclosed herein is welcome to debate them, the only request is that you come with hard data to back up your claims in lieu of argument regarding methodology, which can simply go on all day. In other words, I showed you mine, now show me yours...

In my, oh so humble opinion, any investor who purchased securities based upon the results of the bank stress tests was literally robbed, and defrauded. Then again, that is just my oh so humble opinion!

I have fulfilled my promise to release the information and data that I sourced from the NY Fed and the FDIC web sites. It is complete, and is left open so you can run your own calculations, studies and assumptions. Feel free to pass it around as well. It is not a small spreadsheet, so you may need to some time to parse through it: Revised SCAP Assumptions Public Open Source Version Morgtage Losses, Defaults & Delinquincies for Banks: Public Open Source Version 2009-05-14 13:30:12 1.16 Mb. Note: at least one material typographical error was found in this spreadsheet, thus I have taken it offline until Monday until I can have it looked into. The effiicacy of the open source model, eh?

The full report, complete with sources and methodology is available here, free of charge. I simply ask that you forward it to your local congressman/woman and/or favorite media personality. The Truth shall set you free (or get you locked up, depending upon which side of the Truth you are on): BoomBustBlog.com's Realistic Recast of SCAP BoomBustBlog.com's Realistic Recast of SCAP 2009-05-12 14:52:09

Any bank or government official who significantly disagrees with the conclusion enclosed herein is welcome to debate them, the only request is that you come with hard data to back up your claims in lieu of argument regarding methodology, which can simply go on all day. In other words, I showed you mine, now show me yours...

In my, oh so humble opinion, any investor who purchased securities based upon the results of the bank stress tests was literally robbed, and defrauded. Then again, that is just my oh so humble opinion!

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