a, as I understand it, it's because Wells Fargo isn't taking on any risk. They just sell those loans without ever actually owning them at any point, and so the risk is sucked up into the range hood and blows into the neighbor's patio. Or something. I don't know, I'm not a CEO or anyone important.
Just had the first discussion in roll call today about all the empty houses getting broken into and stripped of wiring, or used as a transient camp. Just in the last month we have had a wave of houses going empty. Not just the new-builds that never sold, but many old homes too in established neighborhoods.
Sounds as if Wells is acting as a commissioned broker for the transactions or has an long-term agreement with some suckers to purchase/sell without recourse.
Yea, I have a friend who is a senior executive at Wells and I asked him two years ago about this. They are very well run and (supposedly) have been preparing for a credit crunch for quite some time..
"(We) take those risks and (we) sell that off to investors so we never get into the chain of ownership," he (Wells Fargo COO) said. "It's that simple."
Does Wells Fargo have some deal that they can't be forced to buy back the worst stuff? Are they still AAA??
a, no, neither the laws of physics nor the facts of finance have been suspended as a special favor to Wells Fargo. The CEO is just a flaming doofus when he opens his mouth to a reporter. One does hope he's less of a doofus when the press moves on to the next car wreck.
I don't, by the way, necessarily mean to suggest that WF is or ought to be in any special trouble. I know, as it happens, a number of WF employees in the mortgage side. They are not, actually, as naive about risk as their fearless leader is. They must have just died over that statement.
Hey, Bailey, you're back! I see having been in the land of surf and sun hasn't improved your attitude any, thank heavens.
In a few hours I'll get over the mental image of drfly being the whalebone in the lacy Tanta-hems of the corset of the website. CR has to be inserted into the simile somewhere, but
See, this is where you just want to go top off your coffee cup. Walk away from the keyboard, and no one will get hurt.
Foreclosures do drop the value in the neighborhood even if they do not make it to the comps.
And it appears that no one is at home in loss mitigation for the wall street boys or their clients to answer the phone to minimize losses for the first lien holder thus driving prices down even more.
This is one of those unintended consequences that worried us bears a bit back. How does the system handle stress. Not too well, in this case.
In the old days, the second would have negotiated either to reduce his losses or to help with his networking and community relations. That is, it is not in a community based second's interest to let property values crash, but to a foreign second, he may not even know and if he does, will not care.
I call bustier! Lightweight, nearly transparent and more of a distraction than anything useful.
Wells Fargo has me in their portfolio and it kills me. Their mortgage servicing dept needs a collective rectalicrainial extraction. It doesn't surprise me to hear the big boss not know about the possibility of buy backs.
Anyone care to comment on the CDO disaster around the corner? Mauldin did a piece last week regarding litigation from the CDO buyers (European institutions) vs wall street IBs. Replay of the telco debt buyers from 1998-2000?
well Tanta, the last time I was shopping for a corset - not for me - I was informed by the sales woman that there were problems in the supply chain: "There's a wroldwide shortage of boning" she informed me, to which I could only sigh and heartily concur.
While I am holding the conch shell, I will break down and ask the Dumb Question: why would WF mortgage employees employees cringe upon hearing Stumpf's remarks? And what does it mean that the bank wants "to increase its servicing portfolio, the business of collecting payments on mortgages"? The make the loan, sell it off, but still handle the payment processing? Are they hoping for lots of late fees or do they just make money charging the guys who have the loan?
Here's another Merrill victim. They may have the biggest case of cold feet since that runaway bride from Georgia a while back:
"ResMAE grew quickly to become a top 20 subprime lender in the U.S. However, by early 2005, loan originations began to wane, knocking ResMAE's profitability. By cutting costs and lifting the interest rates it charged on loans, the company said it was able to make a small profit last year "despite the industry collapsing around it."
"But then Merrill Lynch, which had become the largest buyer of ResMAE's loans, asked the company to repurchase more than $300 million worth of loans. That "enormous" repurchase request, which ResMAE disputes, triggered a liquidity crisis and forced the company to put itself up for sale.
The repurchase demands "crippled ResMAE's operations by requiring the company to post enormous reserves, which dramatically reduced its capital and operating liquidity," the company said in its filing"
why would WF mortgage employees employees cringe upon hearing Stumpf's remarks? And what does it mean that the bank wants "to increase its servicing portfolio, the business of collecting payments on mortgages"? The make the loan, sell it off, but still handle the payment processing? Are they hoping for lots of late fees or do they just make money charging the guys who have the loan?
94121, we shall move along past the Victoria's Secret problem and get into something really sexy, like mortgage loan servicing.
First, they cringed because the man claimed to, basically, sell loans they never "owned." That would, taken literally, be, like, illegal. It's the age-old assumption that if you sell loans "without recourse," as Wells and everybody else does, you have no risk. But, as we have seen, you can still have risk: EPDs and general rep-and-warranty repurchase liability. Stumpf sounds like he's never heard of that before, which is pretty laughable. It's the usual CEO-with-no-grip-on-details-says-goofy-thing problem.
About servicing, yes, most of the big banks sell loans "servicing retained," meaning they do the payment processing, tax and insurance escrows, collections, foreclosures, etc. for the investor. Bond investors, of course, don't do their own servicing; Fannie and Freddie don't either, for that matter. They pay someone else to do it, generally somewhere in the neighborhood of 25 bps for FRMs and 37.5 bps for ARMs. If you are a large and efficient servicer, it is a reliable source of income. It is, actually, or can be, counter-cyclical: when rates go up and therefore new loan originations go down, your servicing rights have even more value because loans don't "run off" in refis.
But, as we have seen, you can still have risk: EPDs and general rep-and-warranty repurchase liability. Stumpf sounds like he's never heard of that before, which is pretty laughable. It's the usual CEO-with-no-grip-on-details-says-goofy-thing problem.
What? "No grip on details". Even as a non-expert I would dare to say that the repurchase liability is not a detail, but a matter of life and death in the subprime business. Or was that just so heavy sarcasm that I wasn't able to grasp it?
aapo, I guess I just wasn't up to my usual standard of invective. Heck, I called the man a "flaming doofus" several comments up; so I was a little gentler later on.
What I had in mind are all the famous CEO trials--Enron, WorldCom, Tycho, etc.--where the defense is always, look, he's the CEO. He can't be expected to understand the business enough to spot a problem. That's why we had to pay him some obscene number of millions of dollars.
Full Disclosure: I'm not trying to accuse Wells Fargo of criminal wrongdoing. I'm trying to clarify the extent to which the CEO said something bird-witted in public.
That's why we had to pay him some obscene number of millions of dollars.
That's actually something in capitalism that always makes me feel a little uneasy. How is it possible someone that ignorant was selected to be the CEO of a major company? You would suppose that the big companies would have the best big-wigs instead of pointy-haired bosses in charge, no?
Oh well, I guess life's just as irrational as always. For some reason, that just generally works. The miracle of the capitalism.
not sure if you're still checking this thread -- but thank for the fill-in. It's stuff I need to learn.
From what you and others say about EPD and rep-and-warranty repurchase liability, it sounds like there is a "lemon law" for loan sales as well? IOW let's say John borrows $500k from a bank we'll call WtF. WtF goes out in the financial market and sells the mortgage loan to another bank we'll call BuyIt. BuyIt purchases the loan (for how much? $498k?) and WtF continues to service it. Then John gets into trouble because he mis-stated his stated income and can't make his payments, even though he just got into it three months ago. Since he went craps within the first twelve months, he is considered an EPD. It sounds like you're saying that BuyIt can now go back to WtF and say "hey, you know that loan I bought from you? The wheels just fell off. That guy John doesn't have any money to pay it." and they can return it or hold WtF liable to take it back, refund the $498k and what, pay a penalty?
Interesting and if true I can now see why a WF employee would cringe upon hearing Stumpf's comments.
thanks for the lesson, and like a good foundation garment you provide form and function.
it's immature to yell "first!" isn't it? I shouldn't do it. It's like wet cement .
FIRST!!
Still shootin' blanks, ey Billy?
Can someone explain to me why Wells Fargo stock hasn't cratered yet?
a, as I understand it, it's because Wells Fargo isn't taking on any risk. They just sell those loans without ever actually owning them at any point, and so the risk is sucked up into the range hood and blows into the neighbor's patio. Or something. I don't know, I'm not a CEO or anyone important.
Commentary: Subprime Hits a Wall : HousingWire || financial news for the mortgage market
Just had the first discussion in roll call today about all the empty houses getting broken into and stripped of wiring, or used as a transient camp. Just in the last month we have had a wave of houses going empty. Not just the new-builds that never sold, but many old homes too in established neighborhoods.
Sounds as if Wells is acting as a commissioned broker for the transactions or has an long-term agreement with some suckers to purchase/sell without recourse.
Yea, I have a friend who is a senior executive at Wells and I asked him two years ago about this. They are very well run and (supposedly) have been preparing for a credit crunch for quite some time..
Hey Mabel, not anyone important? You and dryfly are the corset for this site & and we ALL know how important that is!
Tanta, Thanks. I read this article and I nearly gagged:
Business & Financial News, Breaking US & International News | Reuters.com
"(We) take those risks and (we) sell that off to investors so we never get into the chain of ownership," he (Wells Fargo COO) said. "It's that simple."
Does Wells Fargo have some deal that they can't be forced to buy back the worst stuff? Are they still AAA??
a, no, neither the laws of physics nor the facts of finance have been suspended as a special favor to Wells Fargo. The CEO is just a flaming doofus when he opens his mouth to a reporter. One does hope he's less of a doofus when the press moves on to the next car wreck.
I don't, by the way, necessarily mean to suggest that WF is or ought to be in any special trouble. I know, as it happens, a number of WF employees in the mortgage side. They are not, actually, as naive about risk as their fearless leader is. They must have just died over that statement.
Hey, Bailey, you're back! I see having been in the land of surf and sun hasn't improved your attitude any, thank heavens.
In a few hours I'll get over the mental image of drfly being the whalebone in the lacy Tanta-hems of the corset of the website. CR has to be inserted into the simile somewhere, but
See, this is where you just want to go top off your coffee cup. Walk away from the keyboard, and no one will get hurt.
Foreclosures do drop the value in the neighborhood even if they do not make it to the comps.
And it appears that no one is at home in loss mitigation for the wall street boys or their clients to answer the phone to minimize losses for the first lien holder thus driving prices down even more.
This is one of those unintended consequences that worried us bears a bit back. How does the system handle stress. Not too well, in this case.
In the old days, the second would have negotiated either to reduce his losses or to help with his networking and community relations. That is, it is not in a community based second's interest to let property values crash, but to a foreign second, he may not even know and if he does, will not care.
I call bustier! Lightweight, nearly transparent and more of a distraction than anything useful.
Wells Fargo has me in their portfolio and it kills me. Their mortgage servicing dept needs a collective rectalicrainial extraction. It doesn't surprise me to hear the big boss not know about the possibility of buy backs.
kudos for that Robert, " a collective rectalicranial extraction"...the amazing bodily pathways...
lets hope surgery is only a passion and not a hobby.
Anyone care to comment on the CDO disaster around the corner? Mauldin did a piece last week regarding litigation from the CDO buyers (European institutions) vs wall street IBs. Replay of the telco debt buyers from 1998-2000?
Unaccountably enough, I find myself thinking of those old Reader's Digest articles, you know, "I Am Joe's Gastrointestinal Tract" and so on.
Maybe that's only funny if you've just been called "CR's Corset."
well Tanta, the last time I was shopping for a corset - not for me - I was informed by the sales woman that there were problems in the supply chain: "There's a wroldwide shortage of boning" she informed me, to which I could only sigh and heartily concur.
While I am holding the conch shell, I will break down and ask the Dumb Question: why would WF mortgage employees employees cringe upon hearing Stumpf's remarks? And what does it mean that the bank wants "to increase its servicing portfolio, the business of collecting payments on mortgages"? The make the loan, sell it off, but still handle the payment processing? Are they hoping for lots of late fees or do they just make money charging the guys who have the loan?
Here's another Merrill victim. They may have the biggest case of cold feet since that runaway bride from Georgia a while back:
"ResMAE grew quickly to become a top 20 subprime lender in the U.S. However, by early 2005, loan originations began to wane, knocking ResMAE's profitability. By cutting costs and lifting the interest rates it charged on loans, the company said it was able to make a small profit last year "despite the industry collapsing around it."
"But then Merrill Lynch, which had become the largest buyer of ResMAE's loans, asked the company to repurchase more than $300 million worth of loans. That "enormous" repurchase request, which ResMAE disputes, triggered a liquidity crisis and forced the company to put itself up for sale.
The repurchase demands "crippled ResMAE's operations by requiring the company to post enormous reserves, which dramatically reduced its capital and operating liquidity," the company said in its filing"
Another subprime lender, ResMAE, files for bankruptcy - MarketWatch
why would WF mortgage employees employees cringe upon hearing Stumpf's remarks? And what does it mean that the bank wants "to increase its servicing portfolio, the business of collecting payments on mortgages"? The make the loan, sell it off, but still handle the payment processing? Are they hoping for lots of late fees or do they just make money charging the guys who have the loan?
94121, we shall move along past the Victoria's Secret problem and get into something really sexy, like mortgage loan servicing.
First, they cringed because the man claimed to, basically, sell loans they never "owned." That would, taken literally, be, like, illegal. It's the age-old assumption that if you sell loans "without recourse," as Wells and everybody else does, you have no risk. But, as we have seen, you can still have risk: EPDs and general rep-and-warranty repurchase liability. Stumpf sounds like he's never heard of that before, which is pretty laughable. It's the usual CEO-with-no-grip-on-details-says-goofy-thing problem.
About servicing, yes, most of the big banks sell loans "servicing retained," meaning they do the payment processing, tax and insurance escrows, collections, foreclosures, etc. for the investor. Bond investors, of course, don't do their own servicing; Fannie and Freddie don't either, for that matter. They pay someone else to do it, generally somewhere in the neighborhood of 25 bps for FRMs and 37.5 bps for ARMs. If you are a large and efficient servicer, it is a reliable source of income. It is, actually, or can be, counter-cyclical: when rates go up and therefore new loan originations go down, your servicing rights have even more value because loans don't "run off" in refis.
But, as we have seen, you can still have risk: EPDs and general rep-and-warranty repurchase liability. Stumpf sounds like he's never heard of that before, which is pretty laughable. It's the usual CEO-with-no-grip-on-details-says-goofy-thing problem.
What? "No grip on details". Even as a non-expert I would dare to say that the repurchase liability is not a detail, but a matter of life and death in the subprime business. Or was that just so heavy sarcasm that I wasn't able to grasp it?
aapo, I guess I just wasn't up to my usual standard of invective. Heck, I called the man a "flaming doofus" several comments up; so I was a little gentler later on.
What I had in mind are all the famous CEO trials--Enron, WorldCom, Tycho, etc.--where the defense is always, look, he's the CEO. He can't be expected to understand the business enough to spot a problem. That's why we had to pay him some obscene number of millions of dollars.
Full Disclosure: I'm not trying to accuse Wells Fargo of criminal wrongdoing. I'm trying to clarify the extent to which the CEO said something bird-witted in public.
That's why we had to pay him some obscene number of millions of dollars.
That's actually something in capitalism that always makes me feel a little uneasy. How is it possible someone that ignorant was selected to be the CEO of a major company? You would suppose that the big companies would have the best big-wigs instead of pointy-haired bosses in charge, no?
Oh well, I guess life's just as irrational as always. For some reason, that just generally works. The miracle of the capitalism.
Tanta,
not sure if you're still checking this thread -- but thank for the fill-in. It's stuff I need to learn.
From what you and others say about EPD and rep-and-warranty repurchase liability, it sounds like there is a "lemon law" for loan sales as well? IOW let's say John borrows $500k from a bank we'll call WtF. WtF goes out in the financial market and sells the mortgage loan to another bank we'll call BuyIt. BuyIt purchases the loan (for how much? $498k?) and WtF continues to service it. Then John gets into trouble because he mis-stated his stated income and can't make his payments, even though he just got into it three months ago. Since he went craps within the first twelve months, he is considered an EPD. It sounds like you're saying that BuyIt can now go back to WtF and say "hey, you know that loan I bought from you? The wheels just fell off. That guy John doesn't have any money to pay it." and they can return it or hold WtF liable to take it back, refund the $498k and what, pay a penalty?
Interesting and if true I can now see why a WF employee would cringe upon hearing Stumpf's comments.
thanks for the lesson, and like a good foundation garment you provide form and function.