Monday, June 15, 2009

Commercial Mortgage Backed Securities score Record Defaults!

Commercial mortgage-backed securities (CMBS) (securities backed by commercial mortgages) experienced a 2.07% delinquency rate in May as multifamily and retail properties showed weaker performance, driving loan defaults.

It marks the highest CMBS delinquency rate ever recorded by Fitch Ratings since beginning its loan delinquency index in 2001!

“Defaults on larger loans continue to drive delinquency increases because later vintage transactions (closer to the peak of the housing bubble) have larger loans, many underwritten with now unrealized proforma income, as well as now-depleted debt service reserves and high leverage,” says US CMBS group head Susan Merrick in a media statement today.

One of the largest delinquent loans included in the index, Mansions Multifamily Portfolio, was added in the month, accounting for some of the jump from 1.78% at the end of April. The portfolio, worth $160m, consists of four cross-collateralized and cross-defaulted loans, according to the rating agency.

Fitch says declining performance, particularly in oversupplied markets, as well as in secondary and tertiary markets, pushed the multifamily delinquency rate to 4.55%, the highest of all property types. Multifamily properties are highly susceptible to default in CMBS during the current economic downturn, according to the rating agency.

My comments:

This will certainly Not be the all time record of defaults, the worst is yet to come!

I have seen estimates that as many as 1/3 of all commercial mortgages will default in the next few years, which will Decimate the CMBS values and with them, the balance sheets of the banks, insurance companies and pension funds that are the their biggest holders.

I have written previously about the peril these commercial mortgage defaults represent to insurance companies and ultimately to your policies.

Sunday, June 7, 2009

The American ha ha Dream!

The Joke is on Us, even millionaires do not know the truth.

At White and Case, the 107 year old top NY law firm, the managing partner, Mr Hugh Verrier, announced that 200 more lawyers would lose their jobs, nearly 1 in 10 at the firm over all — and not just young associates with everything in front of them, but some million-dollar-a-year ones like himself, the ones with twin mortgages, kids in private school and no Plan B.

In other words, these lawyers, (millionaire wage slaves) were living the American(Banker's) Dream, not realizing the it was all dangling by a paycheck, most of which was being siphoned off by the Bankers. They were Renting their lifestyle. Watch what happens when they can no longer make the rent payments!

Whether you are making $800/mo or $80,000/mo, if you do not understand you are being enslaved by the Bankers, and what you must do to fight back and win, you will never get ahead financially.

Friday, June 5, 2009

Baaad News for Housing!

Moody's macro website,, predicts 60% of all mortgage defaults this year will be caused primarily by unemployment - up from 29% last year.

According to the NYT:

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

The "Knock Out Punch" for the housing market is just over the horizon and it will be worse than anything seen before in housing.

The market is already staggering and reeling, with prices down 30% since the 2006 highs.

The inventory of unsold homes, 10+ months worth, is actually understated as banks are reluctant to take possesion of more foreclosed houses and some are refraining from putting REO's on the market which will depress prices further.

About 30%, not 20% which is the official figure, of homes with mortgages are underwater, their mortgages total more than the home's value.

Clayton's reports 26% of Alt-A mortgages, given to those with slightly better credit than the subprime borrowers, are in some stage of default as of February.

Then there are the Option ARMS. These beauties were toxic loans given to prime borrowers. They allowed the borrower to select (options) from 4 different mortgage payments each month. The most popular option selected (80%), was not even enough to cover the interest payment for that month! Therefore the unpaid interest as well as the principal piled up onto the back end of the mortgage, increasing the balance due precisely when the value of the property was falling!

These two mortgage classes will begin their 3 and 5 year interest rage resets this summer, 2009. With the likelihood of higher interest rates, combined with the inability to refinance on top of the lower prices, record high inventory and double digit unemployment, the housing market is expected to get hit with the Mother of all Housing Collapses! I predict that more than 40% of all Alt-A's and Option ARMS will default. Stay tuned!

This is even before the resets to higher interest rates kicks in starting October this year.

Wednesday, June 3, 2009

Chinese Purchases Pushing Up Price of Gold!

Chinese investors gobbling up gold bullion

By Daily Crux Editor Sean Goldsmith:

Investors in China, the world's second-largest gold consuming country, are stepping up purchases of physical gold as a hedge against economic disaster... "Gold demand in China in the first quarter rose to 114 tons, up 2 percent over the same period last year, solely boosted by an increase in jewelry demand," according to the latest report from the World Gold Council.

Chinese investors are taking a cue from their government, which increased its gold reserves nearly 76% to 1,054 tons since 2003, and will likely continue buying as the dollar continues its death spiral and the renminbi becomes more internationalized... "China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division.

Note: China is rightly scared to death that its holdings of US Bonds will disintegrate in value as inflation takes hold in the US. The prospect for which is HUGE, considering the Trillions of dollars in bonds the Govt and the Fed have issued to fight the deflation in this country.

They are buying gold as protection against inflation and the possible devaluation of the US dollar.

This is pushing up the price of gold and my favorite, silver. Over recent months, gold has gone from about $895 to $985, a nice move. Silver on the other hand has gone from $10 to $15 an increase of 50%. For more info on why I feel silver is the better investment, click here: for more information
on "why Silver" including a video by Robert Kiyosaki on Investing in Silver.

Buffet Expects Bond Bubble to Burst!

NEW YORK (Reuters) - Warren Buffett, whose Berkshire Hathaway Inc sits on $25.54 billion of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.

In his widely read annual letter to Berkshire shareholders, the man many consider the world's most revered investor said investors are engulfed by a "paralyzing fear" stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the "triple-A" rated debt.

But Buffett said that with the U.S. Federal Reserve and Treasury Department going "all in" to jump-start an economy shrinking at the fastest pace since 1982, "once-unthinkable dosages" of stimulus will likely spur an "onslaught" of inflation, an enemy of fixed-income investors."

Note: As investors jump into Treasuries, their prices rise, pushing yields down, as they go in opposite directions.

The yield on these bonds is practically zero and Warren reports.

What he and others foresee is that as Trillions of bonds issued by the government and the Fed as bailout funds, loans etc. their prices will fall dramatically as the supply far outstrips the demand for them.

As the prices fall, not only will current investors, who bought at Bubble levels, take huge losses, the interest rates on these bonds will soar, driving the cost of money for mortgages and other financial instruments whose rates are tied to bond up dramatically. This will be a huge blow to the already comatose real estate market and will be a substantial drag on commerce in general as the cost of their funds go up.