A look at the performance of a Stated Income 100% CLTV MBS pool

Michael “Mish” Shedlock over at Mish’s Global Economic Trend Analysis posted an article with a screenshot of one of Washington Mutual’s Mortgage Backed Securities that they securitized in May of 2007. You can read his analysis and see the screenshot here. He doesn’t go into detail on the the age of the loans, but these loans had a weighted average age of 12 months in January 2008 (originated on average in February of 2007). You can see the age each month on the line that starts off WAM/Age.

Just 12 months after origination, 15% of the loans are in foreclosure or are REO. It looks like the delinquencies will continue to rise for some time.

Here is the prospectus that WAMU filed in April of 2007.
Here we can get details on the makeup. It was comprised of 1,765 loans. Only 12.7% of the loans in the pool were Full Documentation Loans. 87.3% were less than Full Documentation (Reduced Documentation or Stated Income, No Ratio, or No Documentation Loans).

The next chart shows that most of the loans had a DTI over 40%. This is using Stated Income. Who knows what the DTI would have been if they had qualified Full Doc. These type of loans are typically qualified as Interest Only based on the start rate (over 80% of these loans were 5 year fixed ARMs).

Finally, here is a chart showing the average CLTV.The weighted average LTV at origination was 78.1%. The weighted average CLTV (combined 1st and 2nd Loan amounts to the value) was 91.2%. 65.6% of the loans had a CLTV over 90%. The weighted average CLTV for the loans in the bracket over 90% was 98%. That means the vast majority were 100% followed by 95% CTLV.

47.27% of the original principle balance were comprised of loans for homes in California, 14.38% were in Florida, and 6.81% were in Illinois. Home prices in these states started declining in late 2006/early 2007. You can find charts of values for San Diego, Los Angeles, San Francisco, Miami, and Chicago on this previous post. They future values in the charts are based on the S&P Case Shiller CME futures contracts.

Here is a chart showing the delinquencies compared to the decline in values based on the Case Shiller Composite 10.

The rapid rise in delinquencies is much faster than the rise in delinquencies in Option ARMs. I have charts and analysis in this previous post. We all know the damage caused by subprime delinquencies. However, with subprime, the delinquency expectancies were a lot higher from the get go. With ALT-A and Option ARMs, the delinquency expectations were a lot lower, but they are performing much worse at a rapid clip.

Here is a quote from the prospectus on who originated the loans: “Ameriquest Mortgage Company, approximately 40.6%; and The Mortgage Store Financial, Inc., approximately 16.8% No other entity originated more than 10% of the mortgage loans.” Ameriquest was a subprime lender and The Mortgage Store Financial was mainly an Alt A lender. I find it amazing that Moody’s was able to give 92.6% of this pool a AAA rating (their highest rating). Moody’s expected a collateral losses to range from 1.30% to 1.50%.

This is despite the fact that these were largely originated from a subprime lender, were only 12.7% full doc, were mainly high CLTV loans, had high stated income ratios, high geographical exposure to CA and FL (states with high appreciation), and finally were originated when prices were already starting to decline.

Who could have known?

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