Mark Hanson, aka, Mr. Mortgage had a great post the other day on the real-time pricing of mortgage backed securities:

Those that do sell to private party investors at the courthouse steps provide a valuable near real-time look at what price professional investors are presently paying for distressed real estate assets.

Because the database tracks all elements of each foreclosure we can drill down and extract near real-time market values for distressed real estate and mortgage notes recently acquired by professional investors at every courthouse auction. If you are a bank analyst — translated another way, this report can provide a near real-time look at loss severities provided the bank still owns the note. But even over a wide body of a specific bank’s originations it will provide a very close indication.

The chart below shows the aggregate monthly discount to the present amount-owed on residential mortgage notes/properties taken to foreclosure sale in CA. Essentially, this is the note discount level it took to attract third-party investors/buyers through the courthouse foreclosure process.

Higher on the chart are more of the Subprime lenders with 100% loans on lower-end properties coming through. In the mid to lower range are more of the 80% original loan-to-value deals. Either way, in March the note discount it took to attract investors when factoring in 80% loans was in the 60%’s, or 30-40 cents on the original note amount. BUT…

If one wanted to extend these findings out to distressed residential mortgage notes somewhere still in the foreclosure process — time to foreclose, property rehab, time/cost to resell, carrying costs and profits would have to be additionally discounted from here. Remember, the percentage discount to the amount owed on the notes at which sales occurred as displayed in this chart resulted in the investor taking the property at that point. Therefore, displayed here is best case scenario.

Click for larger image

If you’re feeling more confident about the banks after the “better than expected” earnings from JPM and WFC I recommend you ignore the chart.above.  This is  potentially horrifying.  ABX confirms what Mark says.  These assets are nowhere near the value that the banks are marking them at.  Add in the mountain of foreclosures that are about to hit the system, the Alt-A resets, the credit card delinquencies and the ensuing CRE blow-up and there’s no doubt we’re in for a very interesting 6 months….