Saturday, August 10, 2013

Thoughts from the Back Row

1. Radian's delinquent inventory is now less than half it's peak level. And there are clandestine cures in the current number. Recently we've been thinking a lot about the rescission and denials that never were: the claims that were never reported because the loan files were never found, never delivered to the servicer, and never compiled at all. Eventually, the banks realized robosigning wasn't going to work for them.

At the same time, Radian is writing business at a pace that will likely add close to half a billion in value over the life of the business. In a year, today's headlines about the effect of future capital requirements on Radian will prove to be a fart in the wind. However, a correction would be healthy and could be imminent.

2. Syncora should be reporting it's worst quarter since reorganization. There seems to be a hard bid in the 0.6s. It may be wise to lighten up before an ugly quarter, but we wonder if the bid is JP Morgan or Greenpoint and if it cares how much money the company loses. Meanwhile, Syncora wrapped Detroit COPs trade near 48 for a current yield (variable) of 1% or less. If the paper were 20, 60% of the loss is gone on any repurchased paper. It seems pretty clear where that bid is coming from.

3. If you wiggle the numbers around (student loan losses were higher but surplus note repurchases more than offset that), the most recent report on the rehabilitation of Ambac's segregated account looks better than Scenario One. Scenario One was a projection of Ambac's performance under a base case scenario which was made at the commencement of rehabilitation. Surplus was projected to exceed outstanding notes by $4B in 2020, with another $1.2B in qualified statutory capital. That now looks more likely to happen has soon as the company wraps up its R&W claims, especially considering that reserves on repurchased wrapped paper are not released, and there is a lot of it.

4. Obama's support for the principles of the Corker-Warner bill makes a fall or winter vote a real possibility. It won't rally the house republicans around those principles, but it will pin them into being the only opposition to a bill that rids the nation of the ugly legacy of Fannie and Freddie. That's a brand that neither Hensarling nor Boehner is shooting for.

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