Sunday, November 29, 2009

TALF Rejections

Okay, I know I'm a little late getting to this (I took my first vacation in 18 months last week and sat on a beach south of Cuba for a few days. No kids, just fruity drinks, bad food, sand, and salty water), but I want it in here for posterity's sake. The Fed continues to keep the market guessing as to their logic, or lack thereof, behind which bonds get accepted (60 in November) and which ones are rejected (3 in November). The real twist this time, is that all of the rejected bonds were previously accepted...

It's really bizarre, two of the rejected bonds (see table below borrowed from Citi's report on the matter - the reached the same conclusions) saw either an increase in delinquencies or an increase in loans with DSCRs < 1.1x since they were previously accepted, and the third bond (BACM 2007-2 A2) actually improved! Citi goes on to point out that several bonds that were accepted had performance declines that greatly exceeded those of the rejected bonds over the same period of time (see second part of the table below).

To quote Jeffery Berenbaum in the Citi report:
So once again we come up short in trying to understand the Fed’s rejection decision process. As we noted above, the uncertainty is even greater this
month, with the rejection of previously accepted bonds, something the Fed has
not done before.

So, you're probably reading that and wondering what happened to Darrell Wheeler. If you're not thinking that, let me know, because he must have hit the road sometime in the last couple of weeks and they have already taken his name off of everything.

All of the prior accepted and rejected TALF bonds can be found here, along with some month-old stats on them.

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