Scott Kibler
Elite Member
- Joined
- Oct 7, 2003
- Professional Status
- Certified Residential Appraiser
- State
- Illinois
Someone brought up Countrywide. Now that is a good example I think. They did 2.6B in sub-prime last month- down from 2.8B- right? So, let's put this in perspective.
If we assume they do that volume every month it is $30B. Last year they did a total of over $600B. So, we are talking aobut 5% of the portfolio (up to 6 if we assume their annual volume will go down 20%). So, we have 19% of these going into default- note I said default because the majority of these do cure.
Now, let's further say that 50% will cure- and that is a very low percentage. Let's also assume ultimate losses of 50% of the loan balance (not atypical). So now you have about $6-700 million in actual losses- or about 1/10 of 1%.
Even if every one ended up in foreclosure they would still be at 2% or less. That might not make for a profitable year but it will not close them down. Adn, given that virtually all lenders have greatly restricted their guidelines today, it is not likely to continue for long. And CW's current volume is done under their new tighter guidelines.
What is the average life of the portfolio under which you base these assumptions? Is that based on recent prepay speeds? Subprime loans tended to prepay pretty darn fast in recent years. What do you suppose would be the default rate should the average life double, or triple?