Darn Brian, you beat me to the punch on that AMC news. Here's something I posted a few minutes ago ...

Just something I came across late today -- American Mortgage Acceptance Co. announced a big financial whacking late today. The problem: $12 million in writedowns of principal and the reversal of $908,000 in accrued interest related to non-performing mezzanine loans. They were written in 2005 to finance two condo conversion projects in Tampa, FL and a real estate development transaction in New Jersey.

The stock was recently down more than $3.50, or 20.5%, due to the late afternoon announcement.

You may recall another lender active in FL, Coast Financial Holdings, has gotten into real trouble thanks to problems with construction lending. Specifically, according to this St. Petersburg Times story ...

"Coast Financial Holdings is finishing a turbulent three weeks in which it transformed from a fast-expanding community bank to a candidate for acquisition under scrutiny of state and federal regulators.

"The source of recent troubles was 482 loans for customers of St. Petersburg builder Construction Compliance Inc. CCI ran out of money last fall while building investment homes in the city of North Port in Sarasota County.

"CCI tapped about $70-million in construction loans from Coast but left customers with unpaid debts on vacant lots and unfinished houses. To the detriment of Coast, many customers vow to walk away from the deals, accusing Coast of failing to monitor and correct CCI's slide into insolvency."

These are just a few isolated incidents, of course. But they do show that loan losses related to the housing bubble/bust won't just be confined to losses on individual, subprime mortgages. Condo conversion loans ... lot purchase loans ... construction loans -- several of them could cause problems in the months and quarters ahead.

"WELLS FARGO: We're not part of the problem. "

Wells Fargo is a very conservatively run bank. Look at their loss reserves... double what any similarly sized competitor would do.

Now the fact that Wells Fargo was making a buck off of loaning out the credibility of their AAA bond rating doesn't surprise me.

Its that they aren't the bagholder. Someone else is. That's what they care about. Its also why they are the last AAA rated bank the USA.

"Look, there's substantially less risk in being the servicer than there is in being the investor. But "less risk" isn't "no risk.""
True. The difference is, Wells Fargo can accept (IIRC) $14 billion in losses before they run out of loss reserves. They're also making $2billion/quarter. While that will drop (and some of that is neg-am equity), They'll be fine. Yes, their bond rating might be put at risk and their profits will be put at risk too. But not their viability as a bank.

You do know that they have $17 billion in free cash sitting around waiting for the right bid?

I do expect them to take a loss over sub-primes. But excluding WFB, Citibank, and HSBC; who else on that list is ready to take a big hit? Answer: none of them.

Got popcorn?
Neil

Apparantly the Staten Island land fill has been re-opened, but it's now being used as a dumping ground for toxic mortgage securities instead. I mean nobody has any on their balance sheets right, so they must be just been buried somewhere? Investment banks won't be holding much of this crap directly, but I'm sure they've been kind enough to stuff dumpster loads of it into the various high yield funds they manage. I would also hazard a guess that there will be somewhat fewer than 10,000 hedge funds in the world by the end of 07. Also, and not to ruin anyone's w/e, but I'd go have a careful read of the holdings of your plain vanilla bond, mortgage and money market funds - I think you'll be shocked by the extent of their not so risk-free holdings. I know I was when I had a good look at my supposedly prime money market fund about a year ago, and started really digging from there.

But enough of that. I learn a lot from all the comments posted here, so a great long w/e to all.

And here is another example:

Mortgage Grapevine: CA, $513,000, 736 FICO, 90% LTV, Refinance, SF, stated, OO

This one had a loan 9 month ago (took out cash in a refinance) Now he/she needs cash again and there are banks happy to give them a rebate of 2.75% (about 14K cash) and an introductory rate of 1.75% on 80% + 8.875% on 10% This means that the loan broker come back and says:

"I got a loan for you. Your new monthly payment is $748(1st) + $379(2nd) total is $1127 and you get the $14K cash back. Oh, BTW in 6 month (or whenever the start rate ends) your rate go to par + 3.575% "

Let's assume par is 5.25% so this loan goes to 8.825%. (if par is 6 the loan goes to 9.575%)

At that point the monthly payment (interest only, not even taking into account the negative amortization that was accumulated over the 6 month introductory period) is at least $3527+$379 = $3906. Since some payment must go to cover loan itself not just the interest the total monthly payment is north of $4000. (up nearly 4 times what he will paying now)

So the disaster for this customer is postponed by another 6 month (or to when ever the introductory rate continues – can it be 1 year or 3 years ?)

So as long as home prices goes up this whole thing will work and everyone makes money......