Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley
When Buck Meyer thinks about the $300,000 he lost after he bought a subprime mortgage lender's bonds, he doesn't hesitate to denounce financial titans Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley.
Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills, Meyer had no idea that the company was on the verge of bankruptcy. He wondered how something so celebrated as ``a kitchen-table startup'' by the Philadelphia Business Journal and so lucrative that it paid $50 million in fees to the four firms for its burgeoning credit, could default on his money.
``At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer, who almost wiped out the nest egg he received from selling his home in Doylestown, Pennsylvania, six years ago.
Perhaps it means that the higher rater upper tranches have a market, but to securitize new loans, you need to find someone willing to take the lowest tranches...
CHARLOTTE, N.C. -- American Home Mortgage Investment Corp. shares fell 15 percent after the company's loans attracted few bids from investors, fueling concern that losses at subprime lenders are spreading to higher-rated credits.
M&T loses $1.1 billion in market value
When M&T tried to auction off $883 million in Alt-A loans, it couldnt find bidders willing to pay an acceptable price, forcing the bank to write down the value of those mortgages by $12 million. It also will take a $6 million loss on loans that it already sold because the investors are invoking a guarantee requiring M&T to buy the loans back if the borrower doesnt pay on time during the first 90 days after the sale.
Really, Bob, you're beginning to sound like a bond market vigilante.
We looked at a piece by UBS a few days ago, which was written a few months before the REIT hit the DIP, about where those subordinate tranches of those Alt-A securities were headed. The general burden of wisdom thereof was that yields will have to come up to keep those things credit-enhanced.
Then Cal brought up--in blogger comments, unfortunately--AHM's Q4 numbers on its ARM production (including but not limited to OAs). I believe WAC for the whole pile was 7.77%, and 50% of the coupons were over 8.00%. There's some prime yields, hoo-doggie. I'd hate to have to take a subprime loan. Imagine, taking the interest rate risk of an ARM for a mere premium of 1.50% over what you could get on a prime fixed rate.
So AHM got some bids on that stuff that detonated EPS for the year. Am I the only one who is wondering whose pricing was, um, inefficient?
theroxylandr, I really have no idea what you mean by "sent abroad." Honestly, I don't. I really wish someone would provide some data, in the form of, say, CUSIPs or something, that tells me who owns what. I would personally expect to see a lot of these residuals hanging out on the balance sheet of the issuer. But like everyone else, I only know what someone tells me.
You cannot rely on data that reports securitized loans to tell you what is in anyone's portfolio. So people who are looking at LoanPerformance or UBS or anything else are looking at data from securities.
You would have to read the financials of the portfolio lenders to see what's on their books. There is no law--yet--that requires the Federal Reserve or anyone else to publish total numbers on the entire industry by product type.
I would guess, personally, that less than half the OA is securitized. But that is a guess.
--
Here are my comments of this from yesterday with some added comments:
Moreover, bankers may, at some times and in some countries, fail to be up to the mark corporatively [emphasized]: that is to say, tradition and standards may be absent to such a degree that practically anyone, however lacking in aptitude and training, can drift into the banking business, find customers, and deal with them according to his own ideas. Joseph Schumpeter in Business Cycles
FWC: Risky loans - alive and well
And why not! When one has the authority to make risky loans with no risk to himself, or herself, what else is to be expected? This would prove to be the undoing of the American financial system.
Absolutely nothing can prevent the Greater Depression to begin during 2008-10. When bankers turn into Crooks it is all over for an economy and the country. People who defend the bankers and the Fed are morally bankrupt, IMO.
Enjoy the current political system while it lasts! It would be over before many of us are dead.
WSJ news: NAR predicts first median home price decline since 60s
Realtors Predict Annual Price Drop, Lower Forecasts for Home Sales
By Campion Walsh
WASHINGTON -- A real-estate trade group lowered its forecasts for U.S. home sales this year, while projecting what would be the first annual decline in the median national existing home price since it began keeping records in the late 1960s.
In its latest forecast for the real-estate market, the National Association of Realtors projected that existing home sales will fall 2.2% this year to 6.34 million, compared with ...
In the three years before it filed for bankruptcy, American Financial was losing $200 million a year even though it appeared solvent, Miller said in the suit.
The company recorded as profit fees from administering mortgages that it would receive in coming years, using standard accounting rules, said Miller. The amount was inflated because American Business underestimated the rate of defaults, making it look like they would receive more fees and resulting in "phantom" gains from the sales of mortgages.
Sources at the time Grant Thornton resigned had suggested to HW that the former auditor was looking into secondary market pricing strategy and associated transactions at both Fremont General and Accredited.
There's the bid problem, then there's the ask problem . . .
Someday, some talented WSJ reporter will publish the story of the country's biggest OA lender, Golden West, and how its owners sold out to Wachovia at the peak of the market.
Now, not saying World Savings wasn't the most experienced, rational, prudent OA lender. They were. But still, I think the husband and wife team knew they had the best house in a rapidly deteriorating neighborhood -- flowers in the window boxes, trimmed hedges, white picket fence and all, but still going downhill fast.
How will Wachovia fare with the purchase? It will be fun to see.
David, I'm guessing it might be somewhat less fun if you're long Wachovia, but I understand some people get their jollies on the risk roller-coaster.
The Sandlers made a fortune on neg am ARMs while no one else was writing them, which let them cherry-pick pretty well. As soon as everybody and his pet kitty started originating the stuff, the Sandlers cashed out of that whole market.
It kills me that nobody got unduly worried by the smart money leaving the building.
"Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills ... "
Woulnd't yields in the 50% range be a tipoff that there was a relatively high degree of risk here Buck?
Just kidding - the reporter obviously has no idea what he's talking about. Makes you wonder how much value there is in the whole article.
The Muckraker article is spot on. I have been in more than my share of meetings where originators complained that the only way the FBI gets involved is if the lender does of 100% of the investigative & legal work up front & puts a bow on it for the FBI field office to even sniff the case jacket.
Courtesy of the "war on terror" we have a housing mafioso epidemic running full tilt.
In context of a personal tragedy for Mr. Meyer this is still good for a laugh:
"Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills,"
& "``At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer"
A good question. At 2 times the going rate? 3 times? 5 times? Well I am going to suggest somewhere south of 10 times. It is exactly that rate of return that should have raised the red flag.
When I see various seminars about how to get rich in something or other I always wonder why people don't ask the simple question "If it is just that easy why doesn't that guy put some people on salary and take it for himself? Why are the big players just leaving these easy money on the table?" Well it is a little something called risk/reward.
Anyone can make a flat fortune borrowing or lending in a rising market, and plenty of people did, but with that flat fortune comes a huge pool of risk, that people continually fail to recognize that fundamental economic truth is staggering.
Ain't nothin in this life that is free. There really, really isn't any 'Sure thing' 'Can't lose' proposition. Except of course in those cases where you can exploit an asymmetry in information, which depending on your methods either makes you a market expert or a con-man.
Did Mr. Meyer really believe any legitimate company could not find a source of funds somewhere south of 10x T-bill rates? If not what would be their motive for cutting him in on the action? Good will towards men?
Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley
When Buck Meyer thinks about the $300,000 he lost after he bought a subprime mortgage lender's bonds, he doesn't hesitate to denounce financial titans Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley.
Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills, Meyer had no idea that the company was on the verge of bankruptcy. He wondered how something so celebrated as ``a kitchen-table startup'' by the Philadelphia Business Journal and so lucrative that it paid $50 million in fees to the four firms for its burgeoning credit, could default on his money.
``At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer, who almost wiped out the nest egg he received from selling his home in Doylestown, Pennsylvania, six years ago.
Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley - Bloomberg.com
The bagholders are crying it's not fair.
Tanta,
Perhaps it means that the higher rater upper tranches have a market, but to securitize new loans, you need to find someone willing to take the lowest tranches...
Everybody:
Inhale deeply. Now, breathe a sigh of relief.
The FBI is on the job.
TPMmuckraker | Talking Points Memo | Today's Must Read
reprise:
American Home hit as mortgage fallout widens.
American Home hit as mortgage fallout widens - The Boston Globe
CHARLOTTE, N.C. -- American Home Mortgage Investment Corp. shares fell 15 percent after the company's loans attracted few bids from investors, fueling concern that losses at subprime lenders are spreading to higher-rated credits.
M&T loses $1.1 billion in market value
Buffalo News: 404 Error
When M&T tried to auction off $883 million in Alt-A loans, it couldnt find bidders willing to pay an acceptable price, forcing the bank to write down the value of those mortgages by $12 million. It also will take a $6 million loss on loans that it already sold because the investors are invoking a guarantee requiring M&T to buy the loans back if the borrower doesnt pay on time during the first 90 days after the sale.
Really, Bob, you're beginning to sound like a bond market vigilante.
We looked at a piece by UBS a few days ago, which was written a few months before the REIT hit the DIP, about where those subordinate tranches of those Alt-A securities were headed. The general burden of wisdom thereof was that yields will have to come up to keep those things credit-enhanced.
Then Cal brought up--in blogger comments, unfortunately--AHM's Q4 numbers on its ARM production (including but not limited to OAs). I believe WAC for the whole pile was 7.77%, and 50% of the coupons were over 8.00%. There's some prime yields, hoo-doggie. I'd hate to have to take a subprime loan. Imagine, taking the interest rate risk of an ARM for a mere premium of 1.50% over what you could get on a prime fixed rate.
So AHM got some bids on that stuff that detonated EPS for the year. Am I the only one who is wondering whose pricing was, um, inefficient?
I'm asking for clarification - are Option ARMs mostly portfolio investments vs. regular Alt-A loans that are mostly securitisized and sent abroad?
Thanks
theroxylandr, I really have no idea what you mean by "sent abroad." Honestly, I don't. I really wish someone would provide some data, in the form of, say, CUSIPs or something, that tells me who owns what. I would personally expect to see a lot of these residuals hanging out on the balance sheet of the issuer. But like everyone else, I only know what someone tells me.
You cannot rely on data that reports securitized loans to tell you what is in anyone's portfolio. So people who are looking at LoanPerformance or UBS or anything else are looking at data from securities.
You would have to read the financials of the portfolio lenders to see what's on their books. There is no law--yet--that requires the Federal Reserve or anyone else to publish total numbers on the entire industry by product type.
I would guess, personally, that less than half the OA is securitized. But that is a guess.
--
Here are my comments of this from yesterday with some added comments:
Moreover, bankers may, at some times and in some countries, fail to be up to the mark corporatively [emphasized]: that is to say, tradition and standards may be absent to such a degree that practically anyone, however lacking in aptitude and training, can drift into the banking business, find customers, and deal with them according to his own ideas. Joseph Schumpeter in Business Cycles
FWC: Risky loans - alive and well
And why not! When one has the authority to make risky loans with no risk to himself, or herself, what else is to be expected? This would prove to be the undoing of the American financial system.
Absolutely nothing can prevent the Greater Depression to begin during 2008-10. When bankers turn into Crooks it is all over for an economy and the country. People who defend the bankers and the Fed are morally bankrupt, IMO.
Enjoy the current political system while it lasts! It would be over before many of us are dead.
Jas
WSJ news: NAR predicts first median home price decline since 60s
Realtors Predict Annual Price Drop, Lower Forecasts for Home Sales
By Campion Walsh
WASHINGTON -- A real-estate trade group lowered its forecasts for U.S. home sales this year, while projecting what would be the first annual decline in the median national existing home price since it began keeping records in the late 1960s.
In its latest forecast for the real-estate market, the National Association of Realtors projected that existing home sales will fall 2.2% this year to 6.34 million, compared with ...
Here's the "money" quote from the Bloomberg article:
In the three years before it filed for bankruptcy, American Financial was losing $200 million a year even though it appeared solvent, Miller said in the suit.
The company recorded as profit fees from administering mortgages that it would receive in coming years, using standard accounting rules, said Miller. The amount was inflated because American Business underestimated the rate of defaults, making it look like they would receive more fees and resulting in "phantom" gains from the sales of mortgages.
Kash has some excellent graphs regarding the economic expansion the past few years.
The Street Light
Maybe some of the RiskLoves see the subprime meltdown as an opportunity to gain market share in the subprime space.
What's more, perhaps it's not their intention to immediately sell these loans OR sell them through normal distribution channels.
Refinance id!
Housing Wire:
Sources at the time Grant Thornton resigned had suggested to HW that the former auditor was looking into secondary market pricing strategy and associated transactions at both Fremont General and Accredited.
There's the bid problem, then there's the ask problem . . .
Accredited Hires New Outside Auditor : HousingWire || financial news for the mortgage market
Tanta,
Someday, some talented WSJ reporter will publish the story of the country's biggest OA lender, Golden West, and how its owners sold out to Wachovia at the peak of the market.
Now, not saying World Savings wasn't the most experienced, rational, prudent OA lender. They were. But still, I think the husband and wife team knew they had the best house in a rapidly deteriorating neighborhood -- flowers in the window boxes, trimmed hedges, white picket fence and all, but still going downhill fast.
How will Wachovia fare with the purchase? It will be fun to see.
David, I'm guessing it might be somewhat less fun if you're long Wachovia, but I understand some people get their jollies on the risk roller-coaster.
The Sandlers made a fortune on neg am ARMs while no one else was writing them, which let them cherry-pick pretty well. As soon as everybody and his pet kitty started originating the stuff, the Sandlers cashed out of that whole market.
It kills me that nobody got unduly worried by the smart money leaving the building.
Tanta,
Every Grant Thornton person I've encountered has been high-quality technically. Excellent firm.
Not that anyone asked me.
"Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills ... "
Woulnd't yields in the 50% range be a tipoff that there was a relatively high degree of risk here Buck?
Just kidding - the reporter obviously has no idea what he's talking about. Makes you wonder how much value there is in the whole article.
Arbogast,
The Muckraker article is spot on. I have been in more than my share of meetings where originators complained that the only way the FBI gets involved is if the lender does of 100% of the investigative & legal work up front & puts a bow on it for the FBI field office to even sniff the case jacket.
Courtesy of the "war on terror" we have a housing mafioso epidemic running full tilt.
In context of a personal tragedy for Mr. Meyer this is still good for a laugh:
"Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills,"
& "``At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer"
A good question. At 2 times the going rate? 3 times? 5 times? Well I am going to suggest somewhere south of 10 times. It is exactly that rate of return that should have raised the red flag.
When I see various seminars about how to get rich in something or other I always wonder why people don't ask the simple question "If it is just that easy why doesn't that guy put some people on salary and take it for himself? Why are the big players just leaving these easy money on the table?" Well it is a little something called risk/reward.
Anyone can make a flat fortune borrowing or lending in a rising market, and plenty of people did, but with that flat fortune comes a huge pool of risk, that people continually fail to recognize that fundamental economic truth is staggering.
Ain't nothin in this life that is free. There really, really isn't any 'Sure thing' 'Can't lose' proposition. Except of course in those cases where you can exploit an asymmetry in information, which depending on your methods either makes you a market expert or a con-man.
Did Mr. Meyer really believe any legitimate company could not find a source of funds somewhere south of 10x T-bill rates? If not what would be their motive for cutting him in on the action? Good will towards men?