Though too early to call it a trend, the manufactured housing sector showed hints of a turnaround during the April to May reporting period, according to the latest issue of Manufacts, from Credit Suisse First Boston.
Significantly, the repo index declined to its lowest level in five months (down 1,179 to 39,234). For all but the 2000 and 2001 vintages, 60 day-plus delinquencies decreased. Also, for all but the 1999 vintage, loss severities decreased between 1% and 3%, which is the "first such decrease in the last year and may signal that loss severity has peaked," according to the research.
Report author Rod Dubitsky cautioned that it is still premature to shift the sector outlook. "We'll know in several months whether or not this is turning point, but it's too early right now," Dubitsky said.
Other indicators were mixed, the report adds. For example, the constant default rate and the net loss rate increased from April to May for all vintages.
Also, the industry is still facing challenges that are not necessarily of its own making. Some geographic regions with particularly high concentrations of manufactured housing - such as parts of the southern U.S. - were hit disproportionately hard by the recession, and are recovering more slowly.
Interestingly, new MH home sales might be experiencing a delay, as opposed to a true decline, because of a new law in Texas, reclassifying MH to mortgage paper from chattel paper, which prolongs the underwriting process, the report notes.
UBS on the
It was late May that UBS Warburg brought on CDO researcher Douglas Lucas as a full time member of its team - and it didn't take him long to strike up some controversy.
In this month's issue of CDO Insight, Lucas argues that rating agency default assumptions did not keep pace with increases in speculative grade defaults. Also, managers took advantage of "weak structures." UBS attributes these two phenomena to the disastrous 1997/1998 high yield CDO vintage.
Meanwhile, a handful of investors have taken issue with the report for not examining the dealers' role in the problem, reports IFR Markets.
Regardless, according to Moody's Investors Service, 80% of CDOs from this cohort have at least one tranche downgraded, and an additional 10% have at least one tranche on watch for downgrade. On the plus side, UBS notes that many of the structural problems have been addressed in later vintages, and current CDOs feature tougher O/C calculations, and other enhancements, such as excess spread trapping, that make it more difficult to manage to equity investors. Interestingly, of the few deals that emerged out of the vintage unscathed, at least one - John Hancock's Signature 3 - had some of these features already structured into it.