In bank research last week, Merrill Lynch discussed a noteworthy spike in the current loss rates of Oakwood Homes manufactured housing ABS, likely attributable to an aggressive reduction of repossessed inventory.
In late September, Credit Suisse First Boston noted the same phenomenon, stating that Oakwood "suffered a significant increase in defaults as a result of their conversion of [Loan Assumption Program] loans to repo, resulting in accelerated liquidation of the newly classified repo loans."
According to the Merrill, loss rates on several Oakwood transactions rose to above 10% in August from less than 6% the month before. As seen with Greenpoint Mortgage and Bombardier - both of which previously went through periods of accelerated repo reduction - loss rates tend to return to more historic levels after several months.
Oakwood and others may have dumped inventory in anticipation that Conseco/Green Tree Finance, on the verge of failure, will be forced into a massive sell-off sometime soon.
"With an estimated 40,000 repossessed units still overhanging the MH industry, Oakwood may be trying to front-run any potential forced liquidation of Conseco's repossessed inventory," Merrill researchers wrote.
The bank notes that several Conseco MH deals are breaching current loss, cumulative loss, and delinquency trigger tests. There is currently about $38 billion in outstanding MH ABS, more than half of which is Conseco brand. Merrill also notes that, unlike Greenpoint, Oakwood and Bombardier, Conseco's repo inventory continues rising.