checking the wires earlier today, it looks like S&P downgraded a bunch of mortgage deals and CDO tranches. the other thing which catches my eye is the number of a) asian banks being forced to fess up, and b) S&P downgraded some Asia CDO as well. Just wonder if the storm hits there next...
Peter M
The CFC 1099 story was interesting. I would think that it is going to be a can of worm for CFC. A lot of tax is not paid because CFC was too busy to issue 1099.. At a minimum they should get a visit by the IRS and may be paying some fine. Then there will be an issue about the status of the people who should have received the 1099.. I think IRS may make a case that CFC is treating this independent contractor as their own worker by not issuing the 1099 and hence CFC owe a bunch of employment tax... Then the really big fine is coming ...
The sales tactic CFC used is in par with the NEW insider stories.. So I guess more regulation is coming to make broker responsible for client's best interest in selecting loan product. And the prepayment penalty etc will be history (but will they declare all pre-payment penalty void? They will make life miserable for a lot of bank, MREIT etc.. heh heh).
I don't have a date tonight so can I discuss this with the One Who Must be Obeyed (we were on a date when Kennedy gave his Cuban missile crisis speech - she didn't care about that either)?
Must run - was just told to refill her wine glass or get her CDO shoved up my asset backed.
2) Little to no Increasing Rate feature? Gaaaaaaaaaah
3) Risking 15% of quarterly earnings? I think it is substantially more.
If this article is correct, the LBO shops really hold the whip hand on any given existing deal (much more than I would have guessed), but they need the banks to remain active and healthey to secure their future so that is going to mitigate just how hard they drive things. What a mess.
CR
do u have any sense about how hybrid and ARM MBS's from FNM, GNMA, or FHLMC will hold up in the current credit crunch. is their any default stats on this group?
Telegraph UK
Pension funds demand money back
Hedge fund litigation.
It seems just yesterday our trusty regulators were calling for no additional hedge fund laws. Aren't there some old quotes out there in Google land? I know I wasn't dreaming.
Banker, the biggest surprise to me is how little this is mentioned as a contributor to the liquidity crisis. I think the impact of the pier loans is being understated in the articles - Turmoil Imelda struck right about the time Cerberus Closes Chrysler, JPMorgan Owns Pier.
I work for FDC, so I've been following the LBO stuff fairly closely. I still think the Sep 30 FDC deal by KKR will happen. I give it a 90% chance given current conditions; that may change at any time depending on credit markets, though. As for the deals after that, I'm not sure the banks, full from choking on this one, won't sputter and refuse then next -- even with nasty break-up fees. Just speculation.
"that 1099 part of the story doesn't make any sense."
Me too. It is one of those thing that is very easy to do in a big corp with data processing support. Just another routine paperwork that any programmer can whip up the code to print the 1099. Hence my question of whether there is something more behind the accounting of those broker's commission(assuming that this part of the story is true). It is one part of the story that has people name on it. So unless someone outright lie, this is going to be hard to refudge.. I think we will find out more on Monday when Mazilo go on CNBC and all other media to blast this report (don't think CFC has any other choice here). And with more reporter going over the story, we will find out whether this is true.. Someone mentioned that the author is an anlysts writing about finance for major new papers. I think I would want to meet her someday. It take a lot of gut to write a story like this if she has any tie to the financial industry.
At a minimum, the CFC brand is seriously damaged. Prime mortgage space is full of capable competitor (WFC, BAC etc.), why would someone go to CFC after all the media pick up this story on Monday is beyond me. The next question is whether anyone will dare loaning money to CFC through either the ABCP or loan with all these cloud hanging over CFC. The effect can snowball really quickly. And let's not forget about our politician. There is a lot of meat in the article about pre-payment penalty, predatory lending etc. And CFC will constantly be on the news after this. And I would imagine that the NYT lawyers have verified all the quotes etc in the story. I think we can watch wether CFC file any lawsuit and ask NYT to retract the story on Monday... If they don't then we know that the story is true. (If they do, the story still can be true, but it will take more time to figure it out)... The CFC story is getting more and more like a soap opera now...
Office of Thrift Supervision (OTS)
Vacancy Announcement - Speechwriter
"You serve as the principal speechwriter for senior OTS officials and provide advice and counsel on presentation techniques."
Maybe we will hear more from the OTS when this employee is hired.
In the mean time couldn't they borrow one from Homeland Security. I'm over those orange alerts.
Check out the Economist's View link regarding Shiller on Market Psychology. Definitely dovetails nicely with my position that deflation is predominantly a psychological phenomenon.
The idea that the IB's decided to take ALL the market risk and ALL the performance of the target risk and have little to any leverage against the PE firms is just astounding. If I had proposed a deal like that only five years ago I would have jeopardized my job and some folks would have wanted to know if I had fallen and banged my head.
One mitigating factor is that TXU and First Data are precisley the kinds of companies you want to be leveraging. Reliable cash flows, unlikely to default. I guessed a month or so ago and will reassert my guess here, that the PE firms will wait until the last moment possible, then kick in enough additional equity or renegotiate price so the banks still take a whack, but don't choose to get out of the LBO biz. We'll see.
Jacksonville Business Journal
Banking industry profits drop in Q2
"The FDIC did not provide combined data on Florida commercial banks and savings banks, and did not provide non-current data by loan categories for those banks."
Check out the Economist's View link regarding Shiller on Market Psychology. Definitely dovetails nicely with my position that deflation is predominantly a psychological phenomenon.
tj we've been through this. I think teh deflation shadow is dead ass wrong. Psychology is part but can be easily changed with easy money & policy. As long as people want stuff - deflations will be real hard to sustain.
In short deflations are super easy to fix... it's inflations that are the bitch to fix.
Ya, ya, ya Japan.
All the Japanese needed to do was print money into debt forgiveness & retirement funds & they'd have exploded in money supply & inflation.
The Japanese gov't chose not to do that because (1) their people are savers & deflation isn't a big problem to savers and (2) no one was really hurting... you read a lot of stories about Japanese homeless in their deflation? No. They had slower growth and almost full employment & high exports. Who in Japan really was complaining? We were the ones complaining. They exported their deflation pain to the rest of the world.
We'd experience a very different result than the Japanese if we had deflation. We won't tolerate deflation - we'd have millions on the street in no time. We'll choose inflation because we aren't savers...
I mean if was a US pol or bureaucrat and I want to end any possible threat of deflation - just do an RE bailout. The risk of (and psychology for) a deflation would end that afternoon.
Of course by the next morning we'd have to carry our wallets in a wheelbarrow... but that would be a different psychology.
She was standing at the load-in
When the trucks rolled up
She was sniffing all around
Like a half grown female pup
She wasn't hard to talk to
Looked like she had nowhere to go
So I gave her my pass
So she could get in and see the show
Well I sat her down right next to me
And I got her a beer
While I mixed that sound on stage
So the band could hear
The more I watched her watch them play
The less I could think of to say
And when they walked off stage
The drummer swept that girl away
But Rosie you're all right - you wear my ring
When you hold me tight - Rosie that's my thing
When you turn out the light - I've got to hand it to me
Looks like it's me and you again tonight Rosie
Well I guess I might have known from the start
She'd come for a star
Might have told my imagination not to run too far
Of all the times that I've been burned
By now you'd think I'd have learned
That it's who you look like
Not who you are
But Rosie you're all right - you wear my ring
When you hold me tight - Rosie that's my thing
When you turn out the light - I've got to hand it to me
Looks like it's me and you again tonight Rosie
The idea that the IB's decided to take ALL the market risk and ALL the performance of the target risk and have little to any leverage against the PE firms is just astounding. If I had proposed a deal like that only five years ago I would have jeopardized my job and some folks would have wanted to know if I had fallen and banged my head.
Banker you and I might disagree on some stuff - politics, food, where one should live, etc. - but that line is as close to my way of thinking as anything I have ever written.
What possessed them? You've been inside the belly of the beast, the rest of us are 'casual observers'... Is there some kind of 'finance rape drug' equivalent to the 'date rape drug' these PE's slipped into the punch bowl for the IB's? Sip, sip, KLUNK... wake up in the morning with a pier loan?
Trying to decide between deflation or inflation makes my head explode. However, my bet (well-hedged with a little gold bullion) is the opposite of yours.
I don't see how you stop all of the defaults and bankruptcies by homeowners, home builders and lenders. Nor do I believe you can stop the follow-on wave of the same in CRE. Nor do I believe you can stop half of the recent private equity companies from imploding under all the debt they took on. And it will all be from the same root cause, the inability to earn enough to service their debts.
My sister and parents went to japan for a vacation around 1995 and they were stunned by how many japanese they saw living in the parks and public areas. So it might not have been a story in north america. But there were alot of homeless in Japan from their depression.
The current challenge is one of returning an abnormal economy of excess liquidity to an economy of normal liquidity without extinguishing the flame of liquidity entirely. The period of stress will be the time it will take to work off the excess liquidity, to turn the liquidity boom back to a fundamental boom. It is not possible to preserve abnormal market prices of assets driven up by a liquidity boom if normal liquidity is to be restored. All the soothing talk about the fundamentals of the economy being strong notwithstanding the debt bubble is insulting to the thinking mind. This is a debt economy fed by a liquidity boom. When the liquidity boom turns to bust, all the strong fundamental indicators such as corporate earnings will wilt from a debt crisis. Asset value cannot be held up by simply adding excess liquidity forever without creating hyper inflation. Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem. Restoring market confidence requires a rational restructuring of the economy to absorb excess liquidity.
Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem.
So you say. We've had easy money & policy for six years -- it has only delayed (and aggravated) the inevitable.
And the inevitable is what? This is like waiting for Gadot.
People believe deflation like religion when all around them through human history has been inflation. Open the eyes.
The only way you get a deflation is if the people want one. That will never happen in a nation of spenders. It might happen in a nation of savers & even then it is tough to do - they have to not want stuff.
We might have economic problems but deflation won't be one of them, not for long.
Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem.
Weren't you guys around for S&L? Inject liquidity & buy bad loans via RTC-like instrument and you clear the market and reinstate 'confidence'... and leave a ton of inflation in its wake.
In fact the reason the 'confidence' returns is because the fear of holding cash is so great... Its not really confidence as much as redirected fear... you have to ditch cash & buy producing assets just to stay even. FR debt & cash are completely toxic in that environment.
I'm not saying it's good, nor that it will be fun... but inflating won't be hard to do & that's what will be done.
My sister and parents went to japan for a vacation around 1995 and they were stunned by how many japanese they saw living in the parks and public areas. So it might not have been a story in north america. But there were alot of homeless in Japan from their depression.
I work with Japanese - they are my largest customer. They have told me they had fewer homeless & poor at the bottom of their 'depression' than we had in places like San Francisco at the peak of the dotcom boom.
And many of the poor in Japan are retirees - they have terrible safety nets, that's why they save so much.
Japan could've ended their 'deflation' almost overnight just by increasing aid to the elderly. Couple that with a RTC-like thing to buy the bad debts and they would have had plenty of inflation, not deflation.
dryfly, i think you already have hyperinflation in us, schools, healthcare, real estate out of touch with incomes, food,
hell even in europe we have hyperinflation. bread is going up for cca 20% this year and meat in germany is going to rise in price for at least 50%. in my country RE went up in last 4-5 months about 70 to 80% for smaller apartments since bigger ones are already too expensive. we live already in hyperinflation.
i looked at cnn on that article about6 best payed job in us, i work in one of those areas (not RE ), and frankly i can save more or less the same money in eastern europe with ocasional bussiness trips to austria than i would save after paying taxes, housing, transportation, healthcare in us. and if i had a family i would barely break even, and by all means i am an extreme saver. we live in an extreme expensive world ... its scary
And I agree inflation is currently understated. But that makes me even more suspicious of the 'deflation camp'.
I think we have problems, very serious problems. But a sustained deflation isn't one of the things I'd worry about because if that happens the central banks will print money & the gov'ts will reward spending and punish saving to get the money flowing again. The cash will be worth less but it will flow.
well i personally think we head worldwide into a deflation for expensive goods like houses and cars(which are already manifestation of deflation ) and for inflation in daily use goods, food, etc. the later is very dangerious for the elites since subjects who are hungry or are not able to meet they basic needs will rebel, no matter what you tell or present to them via MSM. its the good old "bread and games" saying thats still very true.
I work with Japanese - they are my largest customer. They have told me they had fewer homeless & poor at the bottom of their 'depression' than we had in places
Having lived in Tokyo 1992-2000 I can comment on this. . . the Japanese horror-word of the day is "resutora" -- "restructuring". The middle-level managerial fat that got sacked in the 90s either ended up driving taxis or erecting cardboard hogans in public parks or major train stations.
Japan's high employment comes at the cost of hiring women only for non-career office-color positions.
The other Japanese horror word is "shu-shoku" -- career job hunt. This was a horror for women coming out of 2 & 4 yr universites in the late 90s. . . the ratio was like 1000 applicants for every open position . . . dunno about now.
well i personally think we head worldwide into a deflation for expensive goods like houses and cars(which are already manifestation of deflation ) and for inflation in daily use goods, food, etc.
revro: I'm coming to the same conclusion. Houses got so out of line with incomes that once the looney loans are taken away (were taken away, actually) there's just now way to sustain those prices. If people have to actually save up money again to make a substantial downpayment (10 to 20%) that's gotta reduce demand. Less qualified buyers, less demand. Incomes aren't going to go up much just as they haven't gone up at all since 2000. Too much cheap labor out there readily available all over the world.
However, for most other things like food and energy I'm pretty sure we'll still see inflation in those areas due to increasing global competition for resources.
The "Mortgage Mess" article linked in this post had every conceivable anecdote of how things could go wrong -- or not, such as the one about the people who did end up getting the 30-year fixed loan once they actually sold their trailer first. And I wonder how many non-arm's-length transactions are involved. (The Pents' house had belonged to the wife's father, but then her mother moved out and stopped helping with the mortgage payments. Just how many people ARE getting screwed over by their own boomer/war-baby parents?)
But the one that bothered me most was the last one concerning the Fanfan family. They knew something smelled but felt they couldn't get out of it. And I did the little =RATE() calculation in Excel. $3000 monthly repayments on a loan of $193000 works out as an annualised interest rate in the vicinity of 20%.
How about all foreclosure courts refused to issue foreclosure notices, and credit reference agencies refuse to mark down people's credit, unless the lender can prove that they complied with the existing Truth in Lending Act and state laws on usury.
dryfly, in my reading of history, deflation is the norm. For various reasons, one of which is that tech progress lowers labor costs. Prices tend to fall, as long as the currency has a relatively fixed supply (as in, not fiat-type).
Inflation can only occur when fiat money is used, or the currency is debased, for example when base metal replaces gold/silver. (Or when the monetary base expands faster than GDP, such as when the Spanish brought tons of gold back from the New World.)
We should have had price deflation for the past couple decades, due to the outsourcing of labor to China and third world factories, as well as the acclerated productivity from use of computer chips. It has not, however, which indicates how bad the monetary inflation is. If there is price inflation of 5%, the true inflation rate is 5% plus a maybe 10% deflation factor, or 15% true inflation rate. That is, we in the US have not reaped the benefits of globalization and computerization; we have been doubly robbed.
That said, I agree with you that we face hyper-inflation rather than deflation. The system will try to deflate, but the political pain of this will be so unacceptable that the government will have to hyper-inflate the money supply. Not by "pushing on a string," either. The government will literally give money away, if it has to. By helicopter drops if necessary.
Whatever inflation is done will have to either be used to forgive debt or increase wages very much.
or it aint goin' to work.
This is the nut of the problem, where all the $s are in the hands of folks that do not spend, you can count on deflation, no matter how much you expand the number of $s in their hands. The reason is leverage. The curse of the sub prime is that it supports leveraged purchases so that a loss of $1 in subprime value affects some multiple of that in securities. Likewise all those securities based on better mortgages, payday loans and credit cards.
And in the case of stocks, somewhere a customer has to buy and if he can't sales goes down and PEs go down and the price unwinds at a multiple of the underlying ability of J6P to pay for something.
Here is where the psychology and
politics rear their ugly head, the current powers that be and the likely powers that be support the elites at the detriment of J6P, the danger is that any inflation will be in assets traded only in the elites while J6P spirals downward. Effectively 'pushing on the string' where no one is buying because the $ are not going to the buyers and $ in circulation dry up while $ in some assets explode to infinity and beyond.
Try the inverse floaters with some Bacardi 151, it should do the trick.
Banker,
While I agree that TXU makes sense, First Data is a whole different kettle of rotting fish. The margins/debt service on that deal are so tight that a garden variety recession would've put them tetas arriba.
Meanwhile, my BofA financial engineering whiz is MIA, I'll try and get a hold of him tomorrow. Dude works hard and is a smart cat, but not hearing from him even socially has me worried.
So every time you make an ATM withdrawal you are greeted with an invitation to speak with a bank loan officer, and what do you do? You seek out some back-alley broker who tells you at closing that you have an adjustable-rate mortgage and starts shoving all this paper at you. So what are to do but sign, sign, sign? Tears my heart out, really.
In a RMBS of ARM mortgages, when the mortgages reset who gets the extra interest when there is a reset to a higher rate. Are the various tranches fixed or adjustable?
As usual, there's a whole lot in Gretchen's article that doesn't add up.
(Disclaimer: I'm prepared to believe all kinds of horrible things about CFC. Not on GM's word for it, though.)
LandSafe routinely charges tax service fees of $60, far above what other lenders charge, for information about any outstanding tax obligations of the borrowers.
First, a tax service contract provides information about the status (paid, past due, etc.) of the parcel's RE taxes throughout the life of the loan, and it is transferrable to a new servicer. It is not a one-time check of the land records, which you get with your title policy.
Ripping folks off with a $60 tax service fee? Well, maybe that is a bit high. Three years ago I worked on a deal where GMAC was charging $85 for that. I thought $85 was a bit over the top, which is why I remember it. I just dragged out a procedure manual I wrote in the early 90s for a conservative regional bank, and the tax service fee (a direct pass-through to First American, no mark-up) on the example docs I included was $45. How much inflation is reasonable in 15 years?
It's a little thing, but these details nag at me.
Credit checks can cost $36 at LandSafe, double what others levy.
For real? People are out there charging $18 for a tri-merge credit report? Will those of you who are currently originating loans tell me who that is?
Look, a lot of mortgage wholesalers and correspondents have lost tons of business to CFC for years because they couldn't compete with CFC's cost structure on stuff like this.
In a RMBS of ARM mortgages, when the mortgages reset who gets the extra interest when there is a reset to a higher rate. Are the various tranches fixed or adjustable?
The interest on the mortgages net of servicing fees (and MI, etc.) always belongs to the bondholders. ARMs are no different. (Prepayment penalties are, technically, interest payments, although there are some deals where the ppy is considered a servicing fee and is retained by the servicer. You have to check the prospectus.)
Tranches can be fixed or floating. Floaters can be standard or "inverse."
Remember that what you generally have with tranched securities is a "waterfall," where the top tranches get paid interest until they mature, then the lower ones, on down the capital structure. The top tranches might have a maturity of 2-5 years.
So by the time a pool of ARMs resets, you have lower principal balances both on the bonds and on the pools. In the early years of the RMBS, you had AAA tranches earning, say, 20 bps over LIBOR, and getting all the interest payments. As the ARMs start adjusting, you have B-rated tranches starting to get paid interest, and those B-tranches are paid 200 bps over LIBOR.
If a deal isn't a simple pass-through, then it isn't just "passing through" interest collected to bond holders in a pro-rata fashion. It has bonds that are "accruing" interest from the beginning, but not necessarily being paid out for years. It is usually building up "excess interest" in the beginning--it pays the top tranche less than it collects--which excess (if not eaten up by losses) gets directed as cash payments to the lower tranches later on in the deal.
So increases in the pool note rates don't necessarily increase any tranche's coupon.
Mortgage Broker comments in our local paper: "I can't believe as lenders we did what we did. We could do anything with anyone six months ago" She worked for Wells Fargo subprime unit until this past June.
And I did the little =RATE() calculation in Excel. $3000 monthly repayments on a loan of $193000 works out as an annualised interest rate in the vicinity of 20%.
Remember that a payment could include taxes and insurance (T&I) as well as principal and interest (P&I). Borrowers often don't distinguish, poor things, and it isn't their job to. I'd believe anything about Ameriquest, but it is possible that a significant chunk of that payment is real estate taxes, hazard insurance, mortgage insurance, etc. No way this customer isn't getting screwed, even if $500 of that payment is T&I.
On this 1099 thing, I am confused about who "the broker" is.
If I recall correctly from some long meeting I didn't want to be in, the 1099 is sent to the "licensed brokerage." So if Leopard Print, LLC employs 10 loan officers, LP gets the 1099 and deals with the commissions paid to its own LOs.
I keep getting hung up on that word "commission" in the article. Wholesalers like CFC do not usually pay "commissions" to independent brokers. They pay yield spread premiums to the brokerage. The brokerage pays commissions to its LOs.
Correction to my 1099 item:
20.1.7.3.2 (09-30-2002)
Intentional Disregard of Rules and Regulations
The Intentional Disregard of the Rules and Regulations Penalty applies when the facts and circumstances show that the filer knowingly or willfully failed to comply with the requirements of IRC sections 6721.
Intentional disregard occurs when a filer who knows, or should know of a rule or regulation, chooses to ignore its requirements. The facts should show the filer:
Was required to file,
Knew or should have known of the requirement to file, and
Consciously chose not to file or recklessly disregarded (i.e., ignored) the duty to file the information return.
The Intentional Disregard of the Rules and Regulations Penalty amounts to:
$100 for each information return required to be correctly filed, or if greater:
10 percent of the total amount required to be reported on the information returns for dividends, patronage dividends, interest, fishing boat operators, royalties, and wage and tax statement, or
5 percent of the total amount required to be reported on the information returns for brokers, exchange of partnership interest, or disposition of donated property payments
Thing is, I've worked as a "contractor" for a consulting service that paid me with a W-2. They liked doing that, and since they offered a 401(k) I didn't complain. I had colleagues who did complain, because they wanted to play around with Schedule C, and so they wanted 1099s. The company basically said no, they would not offer a 1099 option for contractors.
It is in the back of my mind, given how this article keeps confusing "sales reps" with "brokers," that you have a case of someone who was actually a contract employee with CFC, and got paid commissions with a W-2, wanting to get a 1099 at the end of the year, as she got from other deals she did that were truly brokered.
However, if this was an "inhouse employee" similar to an insurance agent who works for say State Farm, but is an "independent broker" then they must receive 1099.
I was surprised a couple of weeks ago when the liquidity crunch was hardly mentioned, even in the business section of the Sunday paper (northern Indiana). Todays's Sunday newspaper--2/3's of the front page is the following story:
It's rather unusual to have an economic story featured so prominently. I have to believe that people who do not normally follow business news will start being less confident in the economy. I guess this is already being reflected in the most recent polls. The big question is whether this will result in a significant consumer pullback.
that truly is the largest economic risk, a crisis of confidence.
The ABCP market is a "HUGE" problem. Moreso than most understand.
The upcoming period of earnings, the peak mortgage resets, further mark-to-market issues, hedge fund redemptions, continued ABCP disruptions, and a signifiant loss of consumer confidence will create an extremely difficult period.
For years, a software system in CountrywideÂ’s subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrowerÂ’s cash reserves, a former employee said.
A borrower who has more assets poses less risk to a lender, and will typically get a better rate on a loan as a result. But, this sales representative said, Countrywide’s software prevented the input of cash reserves so borrowers would have to be pitched on pricier loans. It was not until last September that the company changed this practice, as part of what was called in an internal memo the “Do the Right Thing” campaign.
It all depends on how you're using certain terms here.
I have never ever ever allowed loan officers to "input" reserves. Ever.
The LO "inputs" the total balances of all the borrower's asset accounts. The LO inputs the amount of cash the borrower spends at the closing table on fees and points.
The system calculates a PITI payment. It calculates the "after closing" assets by subtracting the closing costs and downpayment from the total assets. It divides the remainder by the PITI to get "months of liquid reserves."
It's nuts to just let someone type a number into "reserves." You get bad data.
I really want to know why GM has such a mission for going after CFC with every misunderstood bit of nonsense she can imagine.
She listens to a bunch of anonymous disaffected former employees or brokers tell her all kinds of shit that she doesn't understand. At minimum, she doesn't ask anyone for a reality check.
For god's sake, the rest of us in this industry have been having our lunches eaten by CFC, the "Wal-Mart" of mortgages, for years! They are the 800 pound gorilla! They grind little community banks into the dust because of their cost structure.
It's just mind-bending to see them held up as the poster-child for junk fees and stuff.
Did you notice the two paragraphs on "profit margin" that move from gross to net without notice?
GM is a sorry excuse for a business reporter. And getting sorrier by the day.
risk capital, I don't know. I'm not assuming that CFC is innocent. I'm not assuming they're guilty. I'm not interested in assuming jack shit. But GM clearly is.
I'm just saying that I can easily imagine a context in which what you just read is perfectly innocent. But a disaffected former employee who didn't understand it could have told you a version of it that sounds sinister.
I would bet you that if CFC has a legally-valid way to keep from having to send out 1099s, it will go there.
That's a classic example of how they save money. I won't argue the merits of not sending a 1099 when it is optional. I will simply point out that it's right up CFC's alley to wring cost savings out of employees. They're famous for that.
Brokers are also famous for wanting to be "sole proprietors" when it suits them and LLCs when it suits them. Fire up the pity party.
"I'm just saying that I can easily imagine a context in which what you just read is perfectly innocent. But a disaffected former employee who didn't understand it could have told you a version of it that sounds sinister."
Agree, that can be said for any media report today, the ability to distinguish between garbage and fact is paramount.
That said, I think your previous industry is important due to its contribution to the current malaise, but, honestly (and this is just me, please do not be offended) I am past the specifics (as to the mechanics) and am more interested in the continued spillover. The continued tightening of standards is interesting to me and the speed at which this is taking place. The continued decrease in participants and the ability to absorb the demand, the ultimate effects on pricing and the potential for a decrease in the wealth effect.
But, the BS of interviewing disgruntled ex-employees and picking apart $30-$85 chargesis a waste of space when their are far more pressing issues at hand, ie the ABCP markets.
re cfc, if the comptroller is saying that b of a cannot convert their securities to common, am i right in saying that b of a made an unsecured loan to them at 7 1/4% with no equity upside?
A whole lot of congresscritters are getting up on their hind legs right now about regulating the mortgage business.
Some people may well have a vested interest in throwing out red herrings about $30-$85 charges. Get congress fired up about that, and all we'll get is some new "consumer protection laws" that "protect" us from overcharges that may not even, in this case, be overcharges.
Similarly, it does matter, even to the ABCP markets, whether borrowers are true subprime credit risks who are getting (underpriced) loans or they are decent credit risks who are getting (overpriced) "subprime" loans. It certainly matters to any conversation that throws the term "demand" around.
Finally, I've read some seriously underinformed hysterical tin-foil stuff lately about ABCP. Unpacking it is tedious and geeky and so on, but I for one care whether ABCP is truly a "pressing issue" or not.
Tanta - I want to second your remarks. The fees cited seem in the normal range to me. In the last few years I've never seen a tax service fee less than $75.00 even in Booniesville, GA, and if I did, I'd be wondering how qualified the service was. Life of loan fees cost more, and the flood service fee sounds like it is a life-of-loan monitoring fee too.
I think the confusion here is between life-of-loan fees and one-time fees. I think Gretchen doesn't know what she's writing about and was misled by some people who either had an axe to grind or didn't know either.
As for the tri-merges, they are probably getting the kind in which the format is XML and feeds directly into your system for processing and analysis. The fee for that sounds reasonable too, since you are allowed to charge (by regulation) for time spent in analysis. The various services do charge more for tri-merges (three scores), since you are getting a service from several different companies instead of one. Not surprisingly, each separate company wants to be paid.
BTW, everyone, life-of-loan fees are higher, and are counted as prepaid finance charges. The brokers she spoke to ought to know the difference, although some brokers are so ignorant of regulations that it's truly terrifying.
As for cash reserves, if Countrywide really had no way to enter a borrower's cash balances in their accounts, it would be remarkable. But since they originate for conforming too, which requires the URLA/UT, I can't conceive of this.
I dislike Countrywide for reasons that are OT, too. Believe me, the last thing I ever expected to be doing was defending them in a forum like this.
Oh, and as for late fees, gurgle, glumph. Everyone charges them. I bet I could do a much better hack job on Countrywide than this.
Oh, and Tanta, did you catch the bit about not distinguishing between serviced and originated loans? Can't blame Countrywide for loans they did not originate.
Gretchen is in the macro-top down financial reporting school. This started as a bottom-up micro problem, the lack of concern for the solvency of the plankton. Don't think they teach that in the Ivy leagues.
Just to show you how pervasive this top-down bias is, heck, we still have ECONOMISTs that can't grasp the ramifications of leverage & insolvency:
Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.
NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.
NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years.
I'm all in favor of not getting lost in the detail weeds and keeping our eyes on the big picture.
Part of the big picture is stock analysts and shareholders who reward big fat consolidated 800 pound gorillas who lay off employees and cheat on corporate taxes and stuff. They punish companies who try to avoid that. It's a big social and economic problem. I see CFC as the former who is now somehow being accused of driving costs up instead of down. That's real Alice-in-Wonderland to me.
Then there's the "too big to fail" problem. I have said several times that I worry about CFC's servicing platform, because it has gotten too big to fail from a consumer-protection standpoint. You just can't have 1 out of every 10 mortgages in this country not get payments processed correctly next month.
Yet the industry will tell you we need servicers of CFC's size in order to achieve the efficiencies and economies of scale that keep costs down to consumers.
It's worth everyone's time to know, in fact, whether CFC keeps costs to consumers down or not. If they're "too big to fail" and they charge boutique fees, why is anyone buying shares?
I don't know whether useful idiots like GM need Morgages 407 or Econ 101.
Was talking with a friend last night that told me that he had invested in some condos locally last fall. It seems that his brother, who is in house council for a couple of developers, got him into these deals. The developers in question put up the 20% downpayment and are paying the monthly payments. Of course CFC is the mortgage company on all 3 condos.
The developers needed to do this in order to reduce inventory so that they could borrow more from the bank...and then build more. The developers agreed to pay him $20,000 a year (per condo), as long as he owned them.
First off, is this even legal?!?
When I asked what type of mortgage they had he didn't even know. He has had other dealings with these guys that has promoted a high level of trust. Here is what I was able to get:
Each condo sold to him for $400,000. That makes the original mortgage on them $320,000.
-His payments on all 3 are around $6200 a month, in addition to taxes (no impound)
It doesn't sound as if these are weird teaser rate neg-ams...which is good. Given that his entire family has invested in these condos, including his brother who is in house council, I asked him to try and dig up some more info. Any thoughts?
If I recall correctly from some long meeting I didn't want to be in, the 1099 is sent to the "licensed brokerage." So if Leopard Print, LLC employs 10 loan officers, LP gets the 1099 and deals with the commissions paid to its own LOs.
I keep getting hung up on that word "commission" in the article. Wholesalers like CFC do not usually pay "commissions" to independent brokers. They pay yield spread premiums to the brokerage. The brokerage pays commissions to its LOs.
Tanta - the yield spread could still be a 1099 but corporate entity to corporate entity. That is how they pay me & I pay myself...
Widgit Master pays dryfly inc via 1099... and they too call them 'commissions'... dryfly inc then employs dryfly as an employee (regular salary - full time) and pays dryfly's wife via 1099 to do the books (part-time regular work) & pays his daughter via 1099 to translate Spanish docs from the Maquilla's (occasional work)... Widgit master doesn't give a flying fridge how dryfly inc gets it done... jus' git'er done.
The developers needed to do this in order to reduce inventory so that they could borrow more from the bank
The developers generally need a certain percentage of units "conveyed to an owner-occupant" in order to meet either their own lender's guidelines, or to allow prospective buyers to get a "conforming" loan on the remaining units.
(I'm not talking just loan amount here. Standard rules for jumbo or not is that a project has enough "presales" of units before a unit buyer can get standard loan terms.)
Right, dryfly. So if CFC sends a 1099 to dryfly, Inc., then it has fulfilled its obligation. If dryfly Inc. doesn't give a 1099 to Mrs. dryfly, then it isn't CFC's fault.
Go back and read GM/"Rita Skeeter"'s article, and see if you can figure out who didn't get a 1099 from whom.
i don't know how newspapering works, but these articles are clearly getting by the editors...isn't there some sort of 'spot check the claims in the article' process, especially for articles trying to slam someone? do they just check her spelling and make sure there are spaces btwn the ellipses, then shoot it out?
Labor shortages coming to a town near you !
Yesterday's article was about the labor shortages in Montana/Wyoming because of the energy boom. What I find particularly humorous is the comment about maxing the HELOC and going home to Mexico or on to the next boomtown;-}
Tanta, guess what? GMAC is no longer servicing my loan as of Sept 1- some outfit in New Jersey I have never heard of is going to be doing the honors. I can't wait until they screw up. I am on a first name basis with the Director of DFI here. I think I can fashion a complaint to make a servicer's hair turn white.
The financial strain is starting to show in the system and a RTC style solution is going to be imposed due to crisis.
Dryfly is the winner as the most accurate! Stagflation with everything that is a world commodity costing a lot more, and local real estate sucking and not being built. Americans will still buy stuff, they just won't buy a huge stucco shack to store it in! Oh yeah, they will be very nasty to the folks on the bottom of the barrel as they slide down the prosperity ladder.
America's great growth machine will stop dead in it's tracks due to higher costs and fewer buyers. On top of it all, the boomers were counting on selling their houses and using the proceeds to retire somewhere cheaper- sorry folks, the great housing slot machine payout is over.
Thing is, I've worked as a "contractor" for a consulting service that paid me with a W-2. They liked doing that, and since they offered a 401(k) I didn't complain. I had colleagues who did complain, because they wanted to play around with Schedule C, and so they wanted 1099s. The company basically said no, they would not offer a 1099 option for contractors.
It is in the back of my mind, given how this article keeps confusing "sales reps" with "brokers," that you have a case of someone who was actually a contract employee with CFC, and got paid commissions with a W-2, wanting to get a 1099 at the end of the year, as she got from other deals she did that were truly brokered.
Actually I sometimes pay wife & daughter via W2 also. It depends on how much direction I give for the project. There have been times were both 'worked' in my home office answering phones & sorting parts - highly directed & dedicated to my biz mission and clearly W2 work & paid out as such.
My wife's bookkeeping is anything BUT directed by me (LOL) and so is my daughter translating... those are completely at their own discretion & schedule... Like outsourcing payroll... I just need results at a certain date.
Having been there & done that - my guess is CFC is in the clear if they DON'T direct these 'broker' folks & even clearer if they are corporate entities like me (not individuals).
If they are individuals & there is a paper trail of CFC micromanagement... then CFC is in real hot water.
Most situations though are in between - gray cats at night.
On the 1099 thingee, there is also the possibility that in a few cases, the address on the 1099 was incorrect. It'd depend on sample size.
I'd be interested in who wrote the check the folks are supposed to have received. CFC or fly by night company who kept the income and SS withholding and is now gone.
As always, human error and lying are part of the universe of possibilities.
Effectively 'pushing on the string' where no one is buying because the $ are not going to the buyers and $ in circulation dry up while $ in some assets explode to infinity and beyond.
-vader
so vader, does this explosion to infinity incl. the stock mkt?
Right, dryfly. So if CFC sends a 1099 to dryfly, Inc., then it has fulfilled its obligation. If dryfly Inc. doesn't give a 1099 to Mrs. dryfly, then it isn't CFC's fault.
Or a W2 to Mrs dryfly - either or. But that's my skin not CFC. Only exception would be if there was no corporate shell between CFC & dryfly family - then if CFC pays us it has skin in the game.
I can't imagine they'd be as stupid as to do that. None of the companies I 'work' for would sign (or even talk to me) unless I had set up dryfly inc as a buffer and all my widgit master inc principals are far smaller then CFC.
Its a two way firewall.
There maybe a story here but the one Gretchen is telling isn't making sense.
But I'll read it again (in the daylight, focusing on it & not the gold bugs, sober & with coffee instead of cheap Bordeaux).
Any speculation about Bernanke's housing comments (upcoming speech)? Will he make anything clear or just fudge? Will he lay out turf boundaries anticipating congressional action? Will he take anybody to the woodshed? Will he just go academic and set out objective facts on all sides of all questions but never make a conclusion?
It depends on how much direction I give for the project.
That was part of the big heartache some of my fellow consultants were having over getting a W-2. They thought it meant they were being treated like some micro-managed peons instead of Big Important Consultants.
One of the owners of the company basically pointed at me and said, "You think we're telling her what to do? You think anybody is telling her what to do? Why don't you go over there and tell her what to do, and see what happens? Wait, let me put my coffee cup down first."
re: "As for cash reserves, if Countrywide really had no way to enter a borrower's cash balances in their accounts, it would be remarkable. But since they originate for conforming too, which requires the URLA/UT, I can't conceive of this."
I was just reading parts of NYT article to a CFC mb. I believe this mb works in Full-Spectrum (CFC's subP division) so this may explain your question.
Mb related several experiences of CFC's software not accepting input for borrower's cash balances. Borrowers who qualifed for Alt-A with cash balances, were only offered SubP.
waaaaaaaaaay upthread there was a question about the outlook for GSE ARM MBS defaults...the MBS will have zero defaults, as always, because they're guaranteed. the loans will surely have some defaults, i think fannie said they're expecting 5 or 6 bps of losses in 2007. it's been like 1 bp for the last few years.
That was part of the big heartache some of my fellow consultants were having over getting a W-2. They thought it meant they were being treated like some micro-managed peons instead of Big Important Consultants.
One of the owners of the company basically pointed at me and said, "You think we're telling her what to do? You think anybody is telling her what to do? Why don't you go over there and tell her what to do, and see what happens? Wait, let me put my coffee cup down first."
LOL. My world exactly.
The biggest reason widget master wants me to have my own corp to pay myself is the fear of liability.
1) I tell some engineer how to use our parts & he does... next thing we know the bridge over the Mississippi is in the river... dryfly inc's pockets are a lot smaller than widget master's and lawyers all learn that the first day of law school.
2) might crash into a school bus on a sales call... if I'm dryfly inc is my problem... if not it's widgit master.
Regardless anytime I get new sales managers (typically from megacorp int'l and recently hired by widget master) who wants to 'micromanage' me... I ask them if they know where to send my W2 and where do I go to fill out the paperwork to get on their insurance & 401K benefit programs.
That puts an end to it pretty fast. Then I can go back to fishing or blogging whenever I want.
i asked CR about this last nite and he referred me to you:
do u have any sense about how hybrid and ARM MBS's from FNM, GNMA, or FHLMC will hold up in the current credit crunch? is their any default stats on this group?
Actually, the article on the front page of my paper has a lot about mechanisms--home mortgages are securitized and how it is important for the securities to be attractive to investors. Less sophisticated than CR Blog but quite a lot about how connections in the economy link subprime to broader issues of debt, leverage and liquidity.
Also, some direct suggestions on how to conservatively improve one's financial situation, by saving, paying off credit, qualifying for good loans etc. Not much of the anectodal stuff about how "Sally and Sam" got into trouble with their mortgage.
We're also having trouble with property taxes, which have been historically low in Indiana. However the latest taxes are up 75% for some people. Property taxes are the second of three front page issues.
Bill said: "It's rather unusual to have an economic story featured so prominently. I have to believe that people who do not normally follow business news will start being less confident in the economy. I guess this is already being reflected in the most recent polls. The big question is whether this will result in a significant consumer pullback."
There was a story on the front page of my local paper today about the forecast nationwide drop in housing prices.
However, by the time such stories hit the front page of a local paper that's more indicative of a "saturation point" when the last people to "get it" finally do. The information is now ubiquitous and everyone knows it now.
A sentiment low-point, like "The Death of Equities.":)
thanks for the input. i wanted to apply this info to the ongoing success of outfits like MFA (mortgage reit) and Thornburg. why would Thornburg be struggling?
how do u come up with this stuff? i hope u don't make investment decisions based on that type of anecdote. the housing unwind will take yrs to unfold much like the buildup.
idoc, Thornburg's problem is its leverage and its hedges against its interest rate risk, not its credit quality.
Thornburg made a lot of loans to very high quality borrowers at razor-thin spreads, because that was back when we priced "what risk?" with "what spread?" You have to lever up a portfolio like that to make any money off of it.
There's also a "duration" problem in play here. Outfits like TMA get hosed, sometimes, when those low-rate loans stay on the books for a long time. The borrowers won't refi because prevailing rates are much higher than what they got in 2004. But if TMA financed its operations with shorter-term money, to get the spread, they're hosed when their cost of funds reprices to market and the mortgages don't.
The GSEs basically exist to buy fixed rate paper (or ARMs with long initial fixed period). They really don't take tons and tons of credit risk. They take tons and tons of interest rate risk. But since the S&Ls blew up 20 years ago after having kept a bunch of fixed rate loans they couldn't hedge, it was important to have the GSEs there to take fixed rate risk.
All this talk about ARMs and credit risk, and we sometimes forget that somebody has to pay the hedge cost of a 30-year fixed rate of interest. In an ARM, the borrower absorbs the duration risk. In a FRM, the lender absorbs it. When Greenspan told consumers to take ARMs, he was telling banks not to hold FRMs in portfolio. Seems prescient now, doesn't it?
how do u come up with this stuff? i hope u don't make investment decisions based on that type of anecdote. the housing unwind will take yrs to unfold much like the buildup.
Ya but it might recede into local sore spots & be less 'national'. S&L was like that... blew up on a nation scale for a year or two... then festered in agriculture, oil patch & commodity-process industry for a decade after that. If you weren't tied to those industries or lived where they were prominent - you'd never know there was a problem.
I think the focus on fees and 1099s misses the point. If Morgensen's article is accurate, it appears that Countywide systematically guided borrowers into mortgage products that met its own interest rather than those of the borrowers. If the substance of this allegation is true, it will be very damaging to their reputation. When you are renting money, reputation is very important. Fairly, or not, after reading this, there is no way I would consider them for a home loa
a consultant, eh? did you provide 'strategic insights' and 'thought leadership'?
Nah, those were the 1099 people.
I mostly waded hip-deep into somebody's mortgage processing system and said, "Look, you can't let your LOs type in this number. You must have your system calculate this number from other inputs, and you must build edits into the system to catch inputs that are inconsistent."
Then they mostly looked at me and said, "Yeah, but what do you think about our strategic leadership?"
If Morgensen's article is accurate, it appears that Countywide systematically guided borrowers into mortgage products that met its own interest rather than those of the borrowers. If the substance of this allegation is true, it will be very damaging to their reputation.
LOL. Most of the folks I know looking for loans all know these guys are snakes... as long as they show them the money they'll take it. I think that describes CFC clients better than somebody worrying about reputation.
"Hey Tony, nothin' personal. Its jus' business." The bulk of unwashed masses get that part pretty well - from first mother's milk to final rites, that's what they've been accustomed to hearing. CFC isn't disappointing them.
When you are renting money, reputation is very important. Fairly, or not, after reading this, there is no way I would consider them for a home loan
That's exactly the problem here. The NYT just took business away from CFC by planting doubts in your mind, fairly or not.
I assume you'll go to some competitor of CFC for your loan.
I'll further assume that some of GM's anonymous sources could be CFC's competitors.
Also, I have never in all my days heard of anyone using months of liquid reserves as the primary or even major compensatory factor for the Alt-A/Subprime distinction. FICO, yes. LTV/CLTV, yes. DTI, yes. Months reserves? Well, sure, it matters. So does number of years of employment of borrower and square footage of condo unit and a jillion other things. And this article doesn't actually say that CFC couldn't calculate reserves; it says the sales rep's pre-qual module didn't let the sales rep enter that information directly. It still strikes me as baloney.
But by all means, go to some mortgage company whose processes for handling reserves you know nothing about, as opposed to a company whose process you think you know something about.
Is there some kind of 'finance rape drug' equivalent to the 'date rape drug' these PE's slipped into the punch bowl for the IB's? Sip, sip, KLUNK... wake up in the morning with a pier loan?
I think a bunch of things contribute:
1) Things had been so good for so long, everyone discounted risk. When was the last pier loan after all?
2) PE has become much more important to the IB's than it was when I was there. They've gone from important clients to critical ones. So it isn't just the leveraged Finance guys pushing for things like this, but the equity side, the M&A area etc. I'd guess PE firms generate 1/4-1/3 of all fees at this point. So when they want something, they carry great weight everyhwere in an IB.
3) IB's a ferocious competitiors when things are good. Not just for fees, but for league table rankings and lucites (deal trophies). Everybody wants to be a player. In this world, that means having your name attached to the big deals in the right way.
4) Man for man, the PE guys are better, significantly better, than IBers. Better negotiators, faster thinkers etc. So the IB's get their butts kicked in negoitiations
Now 3 and 4 were also true when I was there, so 1 and 2 are probably where the answer lies.
Alec,
I realize First Data is tight, but they look awfully recession resistant to me. More importantly, get us current up-to-date-scoop!
re cfc, if the comptroller is saying that b of a cannot convert their securities to common, am i right in saying that b of a made an unsecured loan to them at 7 1/4% with no equity upside? houston This was way up thread. BoAs comment was that the bank could not but that the holding company could set up an entity to exercise the options.
i think there will be enough pain to go around for everyone. look at KKR's recent difficulties.
Ya but it might recede into local sore spots & be less 'national'.-dryfly
if i weren't seeing intl bank bailouts, huge monetary infusions by CB's worldwide, a constipated ABCP mkt, HF's blowups globally, interest rate and yield spreads spikes everywhere all as a result of our MBS, CDO global littering, i might actually agree with your supposition.
I have spent all or part of the last 30+ years looking for a date who would find this stuff fascinating. The closest I could come was my wife who listens politely and pats me on the head when my rants are over.
Whatever the truth of their lending practices, 1099 practices, etc., I think it's a safe bet they will be spending a lot more money on lawyers.
The 1099 thing is really odd. I had the impression the IRS was really cracking down. My business was a Chapter S corporation and I paid myself a salary. All sorts of my customers (usually advertisers) would need me to fill out a small IRS form so as not to issue a 1099. I think it just asked for my tax status and the EIN. But the implication was that they were supposed to have this info on hand, or issue a 1099.
I t would seem absurd, but a lot of big obvious things seem to slip by the IRS these days. Like the guys who stopped paying federal taxes for ten years, had Web sites proclaiming it, etc. After the third or fourth article in a major newspaper, I think the IRS noticed.
Someone with an MBA in mortgage finance and a law degree would be well positioned for the job market of the next few years.
so the presumption is that Thornburg had a bunch of FRM on their books that didn't keep up with the increased rates of their short term borrowings. what about an outfit like MFA that invests in hybrid or ARM from GNMA, FNM's primarily. theoretically they wouldn't be exposed to interest rate risk but quite possibly to credit risk if borrowers can't keep up with increasing int rates. where would one look in the financials to determine a companies risk in this regard esp. leverage?
idoc, part of what you're looking for there is the net interest margin. I suggest reading through the footnotes, since management's discussion of risk should talk about how they fund their positions.
Sorry, but I have a lot of problems. Being a crackberry addict isn't one of them. I don't even own one of the little instruments of Satan.
Crispy, I hate to get hung up again, but it depends on what you mean by commission. A wholesaler could pay a broker anything up to 2.00% (fairly reasonable) to 5.00% (atrocious, in my view) yield spread premium.
The broker's costs come out of that to get net profit margin.
Brokerages and direct lenders pay commissions to their LOs anywhere from 50 bps up. Often there are scales, so an LO makes, say, 50 bps on monthly production up to a certain dollar amount, then 65 bps to the next bucket, and so on. Smart lenders (all two of them) reduce commissions for things like in-house refis ("churning" your own portfolio). In any event I would assume a minimum of 0.50%.
"However, by the time such stories hit the front page of a local paper that's more indicative of a 'saturation point' when the last people to 'get it' finally do. The information is now ubiquitous and everyone knows it now.
"A sentiment low-point, like 'The Death of Equities.':)"
IMO this is not a sentiment low-point indicator, this is a we've got to get in front of herd to look like we're leading moment.
Magazine Cover Indicator significance requires a major mag cover (Newsweeks, "Incredible Shrinking Dollar" at earlier dx lows, Times "Jim Bezos - Man of Year" at NDX peak, or your referenced "Death of Equities" cover at 1980s lows).
This is not yet conventional wisdom. When it is conventional wisdom a major mag cover article often marks a cyclical or secular turning point.
Has your friend received any payments from the developer yet? Is there any sense that those condos could be dumped for at least $320,000 if the developer went under?
It sounds like your friend is going to be in a world of hurt if the developer goes under...
Well, IMHO the IBs are going to take a hell of a hit 'cause there won't be many LBOs over the next year
I think they awill absolutely take a whack on writedowns on current exposure, but going forward I'm not so sure about way fewer LBO's. I think they will be done at lower purchase prices and with less leverage and with more protections for the lenders. But I don't think the business is going to go away. These has always been an ebb and flow to that part of the business. Also, remember that PE's are't just paying IB's fees on LBO's but on IPO's, acquisitions by their portfolio companies, dispositions of portfolio companies, fairness opinions, refinancings etc. Those will all continue.
Of course, everyhting above assumes we gradually work our way out of this mess (ala 1998) rather than descend into the fourth circle of hell.
Has your friend received any payments from the developer yet? Is there any sense that those condos could be dumped for at least $320,000 if the developer went under?
It sounds like your friend is going to be in a world of hurt if the developer goes under...
Eli | 08.26.07 - 2:21 pm | #
Yes Eli,
The payments have been made since loan and sale were originated last fall. Property taxes also...the codos are slightly north of Marin county in a fairly decent area of Northern California called Rohnert Park. As far as the value, they are 1500 squarefoot condos that I feel could not fetch the $2500 a month needed to cover PITI...whether they are currently worth 320k is anybodies guess...I was just wondering if this wa legal and what the mortgage rate was....$6500 a month on $960k.
Of course, everything above assumes we gradually work our way out of this mess (ala 1998) rather than descend into the fourth circle of hell. Uh banker, what does the 4th level of hell do to my Fidelity 401K investment in "Primarily invests at least 80% of its assets in bonds included in the Lehman Brothers Aggregate Bond Index." Average maturity 4.6 years.
I see your point about the range of fee generating activities. I'm not sure we need to hit the forth circle of hell for IPOs and fairness opinions to dry up too. Also, if we really have a recession, won't some of those PE investments generate trouble for the PE balance sheets?
Anyhow, I appreciate you sharing your views on this blog, it helps to see different takes on these things.
I'm not sure we need to hit the forth circle of hell for IPOs and fairness opinions to dry up too. Also, if we really have a recession, won't some of those PE investments generate trouble for the PE balance sheets?
First point has some merit on IPO's less true for fairness opinions. Of cours eht eformer are more lucrative so point to Pat! On the second point, YUP! Chrysler anyone? If we really slide into a recession, thins will get ugly...descending into the fourth circle of hell
Robert,
I AM NOT A PERSONAL INVESTMENT GUY, DO NOT TAKE MY ADVICE!
That index is widely regarded as the benchmark for the overall bond world. It is weighted to reflect Treasuries, corporates, mortgages, asset backs, agencies etc relative outstandings at a given point in time. I cannot see a way where this index could ever be riskier than an equity index over any reaosnable length of time. So could you get slugged? Sure. As bad as if you owned equities? Hard for me to see.
I AM NOT A PERSONAL INVESTMENT GUY, DO NOT TAKE MY ADVICE! LOL. Sorry, the question was too subtly tongue in cheek. Seeing as the fourth circle of hell has entered into contingency planning discussions in the bankerdome, one wonders what that means to the bankerdome residents. The burning question is, if we fail to muddle through, will it be inflation/stagflation or deflation?
Banker: one thing I haven't seen people focus on is the IB's amount of hung up MBS pipeline. I see a lot of talk about the $300 bil in "pier" lbo or other corporate credit, but it wasn't just CFC that was going flat out pushing MBS' through the pipeline. LEH and Bear must have had a bunch funded but not put out the back door yet. Is there a $ figure associated with the pier MBS'?
I enjoy this blog and I am not a fan of the NYT in anyway but I think Tanta's comments on this article are 100% off base. I am sure the blind followers will yell at me for stating this, but GM is a respected business journalist. She is not making stuff up - the big picture of the piece was about CFC pushing subprime and alt-a crap. That is what it clearly did. The company's rise correlates exactly to those loan types.
I am not sure who is right or wrong on this 1099 bit - but Tanta's comments are alarming. They are so biased TOWARDS CFC and against GM.
This is a great blog but with all of the internet you need to be careful who you take advice from. Tanta has exposed herself a bit in my opinion as someone that might be too anal to see the big picture for what it is - how do they say it? See the forest through the trees????
The NYT has been published since 1851 or so, it has won 95 PPs. Yeah they have had a few rouge journalists but GM isn't one of them. They are bigger than a blog of unknowns - period.
As someone who has prepared data for RFPs so pension and endowment funds would invest in our hedge and private equity partnerships, I would say that Calpers may be sophisticated, but that the other pension funds are not. Once you land Calpers as an investor, then you have the "Good Housekeeping Seal of Approval" and all the other funds and endowments pile on. Unfortunately, these trend followers usually get a piece of the second, third, or fourth series of funds by which time the money management firm is regressing to the mean since the investment team that had the original great ideas has moved upstairs to company management (i.e, not actively doing the investing) or has taken their performance bonuses, quit, and to set-up their own shops.
A lot of trend following pension funds are going to be doing the big "San Diego" when all is said and done.
"The NYT has been published since 1851 or so, it has won 95 PPs. Yeah they have had a few rouge journalists but GM isn't one of them. They are bigger than a blog of unknowns - period"
Then why are you spending time reading this conversation among people who are interested in this subject? The first rule of internet is to judge the content based on the reason layout by the poster. In Tanta's case, I thought her reasons are well layout. We can choose to agree with her reasons or not. And in your case, your reason is that NYT has been around a long time and recieved awards. How does it translate into GM piece is valid? As you noted, NYT has some problem with the other journalist before and what make you think this publication is not one of it? I am very short CFC. And I believe CFC did push people who can qualify lower cost loan to subprime loan. It is immoral but not illegal. And they will have a great deal of problem convince new borrowers that they are not snake oil salesman. But the 1099 issue is full of questions. I just laughed at the fee issue. Those fee are disclosed fee in the truth in lending form. So if someone decide to pay more for their fee, who is to argue with them?
We will find out soon enough tommorrow. If CFC doesn't put together a very strong response, I think they are gonig to have a very difficult time to be a competitve mortgage lender. And the truth of the other issues will come out as more media outlets investigate the stories.
Falcor Mb related several experiences of CFC's software not accepting input for borrower's cash balances. Borrowers who qualifed for Alt-A with cash balances, were only offered SubP.
That is truly whacked, then. Thanks for the input - I tried to find someone who really knew their systems, but didn't get any hits.
I really do not like Countrywide because of some of the stuff I've seen them do, but not to consider cash balances is one of the craziest things I can imagine. Certainly it is not in the borrower's interest, esp. for subprime.
xofruitcake - I am still waiting for that CFC response????? I guess I missed it.
GM is a fine business reporter - Tanta does great work but her comments on this thread are silly and as an investor short CFC you should clearly understand why.
Look I think its a great blog, I appreciate the views and the work but I disagree with Tanta's view on the article. Her "reason layout" on this point is WEAK - boarderline anal and clearly she has something against the author. Yeah Tanta has high standards, pls give it a break, GM is not some street.com hack.
My point about the NYT is that they have fact checkers - let's wait and see how this plays out. Maybe GM wasn't clear on the fee stuff or 1099 stuff - who cares. She has deadlines, the bigger part of the story is dead on.
As for the legality of pushing people into loans with HIGH prepay fees when they would have qualified for better rates - humm let's see how this plays out in the court of public opinion. This is playing out just like WCOM, Q and ENE - not to mention NEW and LEND.
Dear Tanta,
You are a goddess. Please explain to me what a mortgage pass thru product (FNMA pass thru) (if it is in the portfolio of a bond fund) refers to.
I searched the ever-excellent CR site, but nothing came up.
The Telegraph article is pure foreplay! LOL
checking the wires earlier today, it looks like S&P downgraded a bunch of mortgage deals and CDO tranches. the other thing which catches my eye is the number of a) asian banks being forced to fess up, and b) S&P downgraded some Asia CDO as well. Just wonder if the storm hits there next...
Peter M
SINA (English)
S&P: Bank of China not affected by U.S. subprime exposure
S&P: BOC not affected by U.S. subprime exposure_business_English_SINA.com
The CFC 1099 story was interesting. I would think that it is going to be a can of worm for CFC. A lot of tax is not paid because CFC was too busy to issue 1099.. At a minimum they should get a visit by the IRS and may be paying some fine. Then there will be an issue about the status of the people who should have received the 1099.. I think IRS may make a case that CFC is treating this independent contractor as their own worker by not issuing the 1099 and hence CFC owe a bunch of employment tax... Then the really big fine is coming ...
The sales tactic CFC used is in par with the NEW insider stories.. So I guess more regulation is coming to make broker responsible for client's best interest in selecting loan product. And the prepayment penalty etc will be history (but will they declare all pre-payment penalty void? They will make life miserable for a lot of bank, MREIT etc.. heh heh).
I don't have a date tonight so can I discuss this with the One Who Must be Obeyed (we were on a date when Kennedy gave his Cuban missile crisis speech - she didn't care about that either)?
Must run - was just told to refill her wine glass or get her CDO shoved up my asset backed.
Check 21 law - Big Bank Lobby Wins Again. Consumers lost again.
YouTube - Why Checks Clear Before Deposits
xofruitcake, I'm wondering if Gretchen missed something ... that 1099 part of the story doesn't make any sense.
NC Jim, I understand. I would think talking about CDOs over a glass of wine with your 'OWMbO' would be very stimulating. At least if the wine is good!
Best Wishes.
Re: the Barron's article
1) No MAC for the markets OR the target? Gaaah
2) Little to no Increasing Rate feature? Gaaaaaaaaaah
3) Risking 15% of quarterly earnings? I think it is substantially more.
If this article is correct, the LBO shops really hold the whip hand on any given existing deal (much more than I would have guessed), but they need the banks to remain active and healthey to secure their future so that is going to mitigate just how hard they drive things. What a mess.
CR
do u have any sense about how hybrid and ARM MBS's from FNM, GNMA, or FHLMC will hold up in the current credit crunch. is their any default stats on this group?
Telegraph UK
Pension funds demand money back
Hedge fund litigation.
It seems just yesterday our trusty regulators were calling for no additional hedge fund laws. Aren't there some old quotes out there in Google land? I know I wasn't dreaming.
Pension funds demand money back - Telegraph
idoc, maybe Tanta will have some good stats.
Banker, the biggest surprise to me is how little this is mentioned as a contributor to the liquidity crisis. I think the impact of the pier loans is being understated in the articles - Turmoil Imelda struck right about the time Cerberus Closes Chrysler, JPMorgan Owns Pier.
I don't think the timing is a conincidence.
Best to all.
FFDIC, wait until Calpers, Nysters, Calstrs, Wsib, etc. review what's in their portfolios. Then the lawsuits will really start flying.
"What a mess."
That is an understatement.
I work for FDC, so I've been following the LBO stuff fairly closely. I still think the Sep 30 FDC deal by KKR will happen. I give it a 90% chance given current conditions; that may change at any time depending on credit markets, though. As for the deals after that, I'm not sure the banks, full from choking on this one, won't sputter and refuse then next -- even with nasty break-up fees. Just speculation.
" FFDIC, wait until Calpers, Nysters, Calstrs, Wsib, etc. review what's in their portfolios. Then the lawsuits will really start flying."
These guys are sophisticated.
If anything, they should be the subject of the lawsuits for fiduciary misconduct/having their heads up their asses.
"that 1099 part of the story doesn't make any sense."
Me too. It is one of those thing that is very easy to do in a big corp with data processing support. Just another routine paperwork that any programmer can whip up the code to print the 1099. Hence my question of whether there is something more behind the accounting of those broker's commission(assuming that this part of the story is true). It is one part of the story that has people name on it. So unless someone outright lie, this is going to be hard to refudge.. I think we will find out more on Monday when Mazilo go on CNBC and all other media to blast this report (don't think CFC has any other choice here). And with more reporter going over the story, we will find out whether this is true.. Someone mentioned that the author is an anlysts writing about finance for major new papers. I think I would want to meet her someday. It take a lot of gut to write a story like this if she has any tie to the financial industry.
At a minimum, the CFC brand is seriously damaged. Prime mortgage space is full of capable competitor (WFC, BAC etc.), why would someone go to CFC after all the media pick up this story on Monday is beyond me. The next question is whether anyone will dare loaning money to CFC through either the ABCP or loan with all these cloud hanging over CFC. The effect can snowball really quickly. And let's not forget about our politician. There is a lot of meat in the article about pre-payment penalty, predatory lending etc. And CFC will constantly be on the news after this. And I would imagine that the NYT lawyers have verified all the quotes etc in the story. I think we can watch wether CFC file any lawsuit and ask NYT to retract the story on Monday... If they don't then we know that the story is true. (If they do, the story still can be true, but it will take more time to figure it out)... The CFC story is getting more and more like a soap opera now...
Uhm, guys?
I tried this with my date and she informed me I was not going to be getting any sex during this century.
What should I do now? Do you think I should suggest some PO strips? Or maybe I should try some inverse floaters?
Help!
"These guys are sophisticated. If anything, they should be the subject of the lawsuits for fiduciary misconduct/having their heads up their asses."
I couldn't agree with you more.
There WILL be a lot of CYA lawsuits, screaming of bloody murder, and finger pointing the likes of which hasn't been seen in a very long time.
Talk to the hand Pablo
Office of Thrift Supervision (OTS)
Vacancy Announcement - Speechwriter
"You serve as the principal speechwriter for senior OTS officials and provide advice and counsel on presentation techniques."
Maybe we will hear more from the OTS when this employee is hired.
In the mean time couldn't they borrow one from Homeland Security. I'm over those orange alerts.
http://www.ots.treas.gov/docs/8/820754.pdf
Pablo,
Here you go! Saturday Night Live!
Pablo,
Saturday Night Live!
YouTube
- Broadcast Yourself.
Hey get your "no closing cost refi" here from Countrywide. No sweat! LOL
https://loans.countrywide.com/FTLP/WHNew/default.aspx?CMSSiteID=WHCOM98&from=PX_GS_N&afid=1652&sourceid=GSA_0005_N;12011;2;214;2;1652;73773;377;CHL;;K15318;T2;D2;Tier1;GoogleAdSense;0;06132007;AdSense;Refinance;p19637534;
dryfly,
Check out the Economist's View link regarding Shiller on Market Psychology. Definitely dovetails nicely with my position that deflation is predominantly a psychological phenomenon.
Reuters
Fed: Trade frictions threaten resilient economy - Dallas Fed Dickhead Fisher said it is fun to work at McDonalds.
Fed: Trade frictions threaten resilient economy
| Reuters
CR,
The idea that the IB's decided to take ALL the market risk and ALL the performance of the target risk and have little to any leverage against the PE firms is just astounding. If I had proposed a deal like that only five years ago I would have jeopardized my job and some folks would have wanted to know if I had fallen and banged my head.
One mitigating factor is that TXU and First Data are precisley the kinds of companies you want to be leveraging. Reliable cash flows, unlikely to default. I guessed a month or so ago and will reassert my guess here, that the PE firms will wait until the last moment possible, then kick in enough additional equity or renegotiate price so the banks still take a whack, but don't choose to get out of the LBO biz. We'll see.
Jacksonville Business Journal
Banking industry profits drop in Q2
"The FDIC did not provide combined data on Florida commercial banks and savings banks, and did not provide non-current data by loan categories for those banks."
Banking industry profits drop in Q2 - Jacksonville Business Journal:
Check out the Economist's View link regarding Shiller on Market Psychology. Definitely dovetails nicely with my position that deflation is predominantly a psychological phenomenon.
tj we've been through this. I think teh deflation shadow is dead ass wrong. Psychology is part but can be easily changed with easy money & policy. As long as people want stuff - deflations will be real hard to sustain.
In short deflations are super easy to fix... it's inflations that are the bitch to fix.
Ya, ya, ya Japan.
All the Japanese needed to do was print money into debt forgiveness & retirement funds & they'd have exploded in money supply & inflation.
The Japanese gov't chose not to do that because (1) their people are savers & deflation isn't a big problem to savers and (2) no one was really hurting... you read a lot of stories about Japanese homeless in their deflation? No. They had slower growth and almost full employment & high exports. Who in Japan really was complaining? We were the ones complaining. They exported their deflation pain to the rest of the world.
We'd experience a very different result than the Japanese if we had deflation. We won't tolerate deflation - we'd have millions on the street in no time. We'll choose inflation because we aren't savers...
I mean if was a US pol or bureaucrat and I want to end any possible threat of deflation - just do an RE bailout. The risk of (and psychology for) a deflation would end that afternoon.
Of course by the next morning we'd have to carry our wallets in a wheelbarrow... but that would be a different psychology.
CR,
One more thing as I think aboput it. Usually the Material Adverse Change clause had some kind of objective criteria, for example
a MAC can be declared if
1) DJIA falls 15-20% OR
2) Ten year Treasury Yield increase 200 basis points OR
3) [xyz] index declines [x%]
I don't think the scenario we are in, while clearly a material adverse change, would have been captured in many older deals either.
Pablo:
She was standing at the load-in
When the trucks rolled up
She was sniffing all around
Like a half grown female pup
She wasn't hard to talk to
Looked like she had nowhere to go
So I gave her my pass
So she could get in and see the show
Well I sat her down right next to me
And I got her a beer
While I mixed that sound on stage
So the band could hear
The more I watched her watch them play
The less I could think of to say
And when they walked off stage
The drummer swept that girl away
But Rosie you're all right - you wear my ring
When you hold me tight - Rosie that's my thing
When you turn out the light - I've got to hand it to me
Looks like it's me and you again tonight Rosie
Well I guess I might have known from the start
She'd come for a star
Might have told my imagination not to run too far
Of all the times that I've been burned
By now you'd think I'd have learned
That it's who you look like
Not who you are
But Rosie you're all right - you wear my ring
When you hold me tight - Rosie that's my thing
When you turn out the light - I've got to hand it to me
Looks like it's me and you again tonight Rosie
The idea that the IB's decided to take ALL the market risk and ALL the performance of the target risk and have little to any leverage against the PE firms is just astounding. If I had proposed a deal like that only five years ago I would have jeopardized my job and some folks would have wanted to know if I had fallen and banged my head.
Banker you and I might disagree on some stuff - politics, food, where one should live, etc. - but that line is as close to my way of thinking as anything I have ever written.
What possessed them? You've been inside the belly of the beast, the rest of us are 'casual observers'... Is there some kind of 'finance rape drug' equivalent to the 'date rape drug' these PE's slipped into the punch bowl for the IB's? Sip, sip, KLUNK... wake up in the morning with a pier loan?
dryfly,
Trying to decide between deflation or inflation makes my head explode. However, my bet (well-hedged with a little gold bullion) is the opposite of yours.
I don't see how you stop all of the defaults and bankruptcies by homeowners, home builders and lenders. Nor do I believe you can stop the follow-on wave of the same in CRE. Nor do I believe you can stop half of the recent private equity companies from imploding under all the debt they took on. And it will all be from the same root cause, the inability to earn enough to service their debts.
DryFly,
My sister and parents went to japan for a vacation around 1995 and they were stunned by how many japanese they saw living in the parks and public areas. So it might not have been a story in north america. But there were alot of homeless in Japan from their depression.
Is there some kind of 'finance rape drug' equivalent to the 'date rape drug'
It's called "Fees" and it gave rise to the date-rape drug "Ru-fees."
The current challenge is one of returning an abnormal economy of excess liquidity to an economy of normal liquidity without extinguishing the flame of liquidity entirely. The period of stress will be the time it will take to work off the excess liquidity, to turn the liquidity boom back to a fundamental boom. It is not possible to preserve abnormal market prices of assets driven up by a liquidity boom if normal liquidity is to be restored. All the soothing talk about the fundamentals of the economy being strong notwithstanding the debt bubble is insulting to the thinking mind. This is a debt economy fed by a liquidity boom. When the liquidity boom turns to bust, all the strong fundamental indicators such as corporate earnings will wilt from a debt crisis. Asset value cannot be held up by simply adding excess liquidity forever without creating hyper inflation. Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem. Restoring market confidence requires a rational restructuring of the economy to absorb excess liquidity.
Central Bank Impotence and Market Liquidity
Psychology is part but can be easily changed with easy money & policy.
So you say. We've had easy money & policy for six years -- it has only delayed (and aggravated) the inevitable.
Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem.
Didn't I just say that? Thanks, ron!
So you say. We've had easy money & policy for six years -- it has only delayed (and aggravated) the inevitable.
And the inevitable is what? This is like waiting for Gadot.
People believe deflation like religion when all around them through human history has been inflation. Open the eyes.
The only way you get a deflation is if the people want one. That will never happen in a nation of spenders. It might happen in a nation of savers & even then it is tough to do - they have to not want stuff.
We might have economic problems but deflation won't be one of them, not for long.
Also, some liquidity problems, such as those caused by a loss of market confidence, cannot be solved by merely injecting money into the financial system which in fact will only add to the problem.
Weren't you guys around for S&L? Inject liquidity & buy bad loans via RTC-like instrument and you clear the market and reinstate 'confidence'... and leave a ton of inflation in its wake.
In fact the reason the 'confidence' returns is because the fear of holding cash is so great... Its not really confidence as much as redirected fear... you have to ditch cash & buy producing assets just to stay even. FR debt & cash are completely toxic in that environment.
I'm not saying it's good, nor that it will be fun... but inflating won't be hard to do & that's what will be done.
dryfly,
I don't think S&L was on the same scale as this, do you?
Do you believe there is no limit to how much money can be created without causing a runaway hyper-inflation?
My sister and parents went to japan for a vacation around 1995 and they were stunned by how many japanese they saw living in the parks and public areas. So it might not have been a story in north america. But there were alot of homeless in Japan from their depression.
I work with Japanese - they are my largest customer. They have told me they had fewer homeless & poor at the bottom of their 'depression' than we had in places like San Francisco at the peak of the dotcom boom.
And many of the poor in Japan are retirees - they have terrible safety nets, that's why they save so much.
Japan could've ended their 'deflation' almost overnight just by increasing aid to the elderly. Couple that with a RTC-like thing to buy the bad debts and they would have had plenty of inflation, not deflation.
dryfly, i think you already have hyperinflation in us, schools, healthcare, real estate out of touch with incomes, food,
hell even in europe we have hyperinflation. bread is going up for cca 20% this year and meat in germany is going to rise in price for at least 50%. in my country RE went up in last 4-5 months about 70 to 80% for smaller apartments since bigger ones are already too expensive. we live already in hyperinflation.
i looked at cnn on that article about6 best payed job in us, i work in one of those areas (not RE
), and frankly i can save more or less the same money in eastern europe with ocasional bussiness trips to austria than i would save after paying taxes, housing, transportation, healthcare in us. and if i had a family i would barely break even, and by all means i am an extreme saver. we live in an extreme expensive world ... its scary 
I don't think S&L was on the same scale as this, do you?
I do. If you lived in Middle America and worked in energy & agriculture like I did you'd think it was pretty big then too.
This current thing might get bigger but right now I can't say that. Anyone who is, is just guessing (more Gadot).
Besides the bigger it is the more it favors 'inflation'... just that much more money we have to print.
Again, not good but not deflation.
revro - it is a bit scary.
And I agree inflation is currently understated. But that makes me even more suspicious of the 'deflation camp'.
I think we have problems, very serious problems. But a sustained deflation isn't one of the things I'd worry about because if that happens the central banks will print money & the gov'ts will reward spending and punish saving to get the money flowing again. The cash will be worth less but it will flow.
dryfly, you put in a space where you shouldn't have...
The cash will be worthless but it will flow.
well i personally think we head worldwide into a deflation for expensive goods like houses and cars(which are already manifestation of deflation
) and for inflation in daily use goods, food, etc. the later is very dangerious for the elites since subjects who are hungry or are not able to meet they basic needs will rebel, no matter what you tell or present to them via MSM. its the good old "bread and games" saying thats still very true.
I work with Japanese - they are my largest customer. They have told me they had fewer homeless & poor at the bottom of their 'depression' than we had in places
Having lived in Tokyo 1992-2000 I can comment on this. . . the Japanese horror-word of the day is "resutora" -- "restructuring". The middle-level managerial fat that got sacked in the 90s either ended up driving taxis or erecting cardboard hogans in public parks or major train stations.
Japan's high employment comes at the cost of hiring women only for non-career office-color positions.
The other Japanese horror word is "shu-shoku" -- career job hunt. This was a horror for women coming out of 2 & 4 yr universites in the late 90s. . . the ratio was like 1000 applicants for every open position . . . dunno about now.
"Have you ever experienced a cell phone running out of power just at the critical time when you need it? "
They only come out at night...
well i personally think we head worldwide into a deflation for expensive goods like houses and cars(which are already manifestation of deflation
) and for inflation in daily use goods, food, etc.
revro: I'm coming to the same conclusion. Houses got so out of line with incomes that once the looney loans are taken away (were taken away, actually) there's just now way to sustain those prices. If people have to actually save up money again to make a substantial downpayment (10 to 20%) that's gotta reduce demand. Less qualified buyers, less demand. Incomes aren't going to go up much just as they haven't gone up at all since 2000. Too much cheap labor out there readily available all over the world.
However, for most other things like food and energy I'm pretty sure we'll still see inflation in those areas due to increasing global competition for resources.
The "Mortgage Mess" article linked in this post had every conceivable anecdote of how things could go wrong -- or not, such as the one about the people who did end up getting the 30-year fixed loan once they actually sold their trailer first. And I wonder how many non-arm's-length transactions are involved. (The Pents' house had belonged to the wife's father, but then her mother moved out and stopped helping with the mortgage payments. Just how many people ARE getting screwed over by their own boomer/war-baby parents?)
But the one that bothered me most was the last one concerning the Fanfan family. They knew something smelled but felt they couldn't get out of it. And I did the little =RATE() calculation in Excel. $3000 monthly repayments on a loan of $193000 works out as an annualised interest rate in the vicinity of 20%.
How about all foreclosure courts refused to issue foreclosure notices, and credit reference agencies refuse to mark down people's credit, unless the lender can prove that they complied with the existing Truth in Lending Act and state laws on usury.
dryfly, in my reading of history, deflation is the norm. For various reasons, one of which is that tech progress lowers labor costs. Prices tend to fall, as long as the currency has a relatively fixed supply (as in, not fiat-type).
Inflation can only occur when fiat money is used, or the currency is debased, for example when base metal replaces gold/silver. (Or when the monetary base expands faster than GDP, such as when the Spanish brought tons of gold back from the New World.)
We should have had price deflation for the past couple decades, due to the outsourcing of labor to China and third world factories, as well as the acclerated productivity from use of computer chips. It has not, however, which indicates how bad the monetary inflation is. If there is price inflation of 5%, the true inflation rate is 5% plus a maybe 10% deflation factor, or 15% true inflation rate. That is, we in the US have not reaped the benefits of globalization and computerization; we have been doubly robbed.
That said, I agree with you that we face hyper-inflation rather than deflation. The system will try to deflate, but the political pain of this will be so unacceptable that the government will have to hyper-inflate the money supply. Not by "pushing on a string," either. The government will literally give money away, if it has to. By helicopter drops if necessary.
anti-inflationists all
and
inflationists all.
Whatever inflation is done will have to either be used to forgive debt or increase wages very much.
or it aint goin' to work.
This is the nut of the problem, where all the $s are in the hands of folks that do not spend, you can count on deflation, no matter how much you expand the number of $s in their hands. The reason is leverage. The curse of the sub prime is that it supports leveraged purchases so that a loss of $1 in subprime value affects some multiple of that in securities. Likewise all those securities based on better mortgages, payday loans and credit cards.
And in the case of stocks, somewhere a customer has to buy and if he can't sales goes down and PEs go down and the price unwinds at a multiple of the underlying ability of J6P to pay for something.
Here is where the psychology and
politics rear their ugly head, the current powers that be and the likely powers that be support the elites at the detriment of J6P, the danger is that any inflation will be in assets traded only in the elites while J6P spirals downward. Effectively 'pushing on the string' where no one is buying because the $ are not going to the buyers and $ in circulation dry up while $ in some assets explode to infinity and beyond.
Pablo,
Try the inverse floaters with some Bacardi 151, it should do the trick.
Banker,
While I agree that TXU makes sense, First Data is a whole different kettle of rotting fish. The margins/debt service on that deal are so tight that a garden variety recession would've put them tetas arriba.
Meanwhile, my BofA financial engineering whiz is MIA, I'll try and get a hold of him tomorrow. Dude works hard and is a smart cat, but not hearing from him even socially has me worried.
So every time you make an ATM withdrawal you are greeted with an invitation to speak with a bank loan officer, and what do you do? You seek out some back-alley broker who tells you at closing that you have an adjustable-rate mortgage and starts shoving all this paper at you. So what are to do but sign, sign, sign? Tears my heart out, really.
L Bux, if this isn't everything you want to know about pass-throughs, I'll retire:
Calculated Risk: MBS for UberNerds I: GSE Pass-Throughs
Off topic question -
In a RMBS of ARM mortgages, when the mortgages reset who gets the extra interest when there is a reset to a higher rate. Are the various tranches fixed or adjustable?
Just wondering....
Thanks.
As usual, there's a whole lot in Gretchen's article that doesn't add up.
(Disclaimer: I'm prepared to believe all kinds of horrible things about CFC. Not on GM's word for it, though.)
LandSafe routinely charges tax service fees of $60, far above what other lenders charge, for information about any outstanding tax obligations of the borrowers.
First, a tax service contract provides information about the status (paid, past due, etc.) of the parcel's RE taxes throughout the life of the loan, and it is transferrable to a new servicer. It is not a one-time check of the land records, which you get with your title policy.
Ripping folks off with a $60 tax service fee? Well, maybe that is a bit high. Three years ago I worked on a deal where GMAC was charging $85 for that. I thought $85 was a bit over the top, which is why I remember it. I just dragged out a procedure manual I wrote in the early 90s for a conservative regional bank, and the tax service fee (a direct pass-through to First American, no mark-up) on the example docs I included was $45. How much inflation is reasonable in 15 years?
It's a little thing, but these details nag at me.
Credit checks can cost $36 at LandSafe, double what others levy.
For real? People are out there charging $18 for a tri-merge credit report? Will those of you who are currently originating loans tell me who that is?
Look, a lot of mortgage wholesalers and correspondents have lost tons of business to CFC for years because they couldn't compete with CFC's cost structure on stuff like this.
I think this 1099 issue is very significant for CFC or maybe I am just a loser CPA who only focuses on items that make me giddy!
The penalties can equal 100% the amount of the payments not reported - OUCH!
In a RMBS of ARM mortgages, when the mortgages reset who gets the extra interest when there is a reset to a higher rate. Are the various tranches fixed or adjustable?
The interest on the mortgages net of servicing fees (and MI, etc.) always belongs to the bondholders. ARMs are no different. (Prepayment penalties are, technically, interest payments, although there are some deals where the ppy is considered a servicing fee and is retained by the servicer. You have to check the prospectus.)
Tranches can be fixed or floating. Floaters can be standard or "inverse."
Remember that what you generally have with tranched securities is a "waterfall," where the top tranches get paid interest until they mature, then the lower ones, on down the capital structure. The top tranches might have a maturity of 2-5 years.
So by the time a pool of ARMs resets, you have lower principal balances both on the bonds and on the pools. In the early years of the RMBS, you had AAA tranches earning, say, 20 bps over LIBOR, and getting all the interest payments. As the ARMs start adjusting, you have B-rated tranches starting to get paid interest, and those B-tranches are paid 200 bps over LIBOR.
If a deal isn't a simple pass-through, then it isn't just "passing through" interest collected to bond holders in a pro-rata fashion. It has bonds that are "accruing" interest from the beginning, but not necessarily being paid out for years. It is usually building up "excess interest" in the beginning--it pays the top tranche less than it collects--which excess (if not eaten up by losses) gets directed as cash payments to the lower tranches later on in the deal.
So increases in the pool note rates don't necessarily increase any tranche's coupon.
Mortgage Broker comments in our local paper: "I can't believe as lenders we did what we did. We could do anything with anyone six months ago" She worked for Wells Fargo subprime unit until this past June.
And I did the little =RATE() calculation in Excel. $3000 monthly repayments on a loan of $193000 works out as an annualised interest rate in the vicinity of 20%.
Remember that a payment could include taxes and insurance (T&I) as well as principal and interest (P&I). Borrowers often don't distinguish, poor things, and it isn't their job to. I'd believe anything about Ameriquest, but it is possible that a significant chunk of that payment is real estate taxes, hazard insurance, mortgage insurance, etc. No way this customer isn't getting screwed, even if $500 of that payment is T&I.
On this 1099 thing, I am confused about who "the broker" is.
If I recall correctly from some long meeting I didn't want to be in, the 1099 is sent to the "licensed brokerage." So if Leopard Print, LLC employs 10 loan officers, LP gets the 1099 and deals with the commissions paid to its own LOs.
I keep getting hung up on that word "commission" in the article. Wholesalers like CFC do not usually pay "commissions" to independent brokers. They pay yield spread premiums to the brokerage. The brokerage pays commissions to its LOs.
So I'm befuddled.
Correction to my 1099 item:
20.1.7.3.2 (09-30-2002)
Intentional Disregard of Rules and Regulations
The Intentional Disregard of the Rules and Regulations Penalty applies when the facts and circumstances show that the filer knowingly or willfully failed to comply with the requirements of IRC sections 6721.
Intentional disregard occurs when a filer who knows, or should know of a rule or regulation, chooses to ignore its requirements. The facts should show the filer:
Was required to file,
Knew or should have known of the requirement to file, and
Consciously chose not to file or recklessly disregarded (i.e., ignored) the duty to file the information return.
The Intentional Disregard of the Rules and Regulations Penalty amounts to:
$100 for each information return required to be correctly filed, or if greater:
10 percent of the total amount required to be reported on the information returns for dividends, patronage dividends, interest, fishing boat operators, royalties, and wage and tax statement, or
5 percent of the total amount required to be reported on the information returns for brokers, exchange of partnership interest, or disposition of donated property payments
IRS.gov 404 Error Page
10% is the penalty - I am sorry for the confusion.
Thing is, I've worked as a "contractor" for a consulting service that paid me with a W-2. They liked doing that, and since they offered a 401(k) I didn't complain. I had colleagues who did complain, because they wanted to play around with Schedule C, and so they wanted 1099s. The company basically said no, they would not offer a 1099 option for contractors.
It is in the back of my mind, given how this article keeps confusing "sales reps" with "brokers," that you have a case of someone who was actually a contract employee with CFC, and got paid commissions with a W-2, wanting to get a 1099 at the end of the year, as she got from other deals she did that were truly brokered.
"Wholesalers like CFC do not usually pay "commissions" to independent brokers. They pay yield spread premiums to the brokerage"
If the brokerage is a corporation then a 1099 is not required anyway. Which makes this all a moot point.
We might have another NY Times article with more holes in it than swiss cheese!
However, if this was an "inhouse employee" similar to an insurance agent who works for say State Farm, but is an "independent broker" then they must receive 1099.
OT-local news
I was surprised a couple of weeks ago when the liquidity crunch was hardly mentioned, even in the business section of the Sunday paper (northern Indiana). Todays's Sunday newspaper--2/3's of the front page is the following story:
"Mortgage meltdown--subprime crisis fallout hitting wallets near, far"
It's rather unusual to have an economic story featured so prominently. I have to believe that people who do not normally follow business news will start being less confident in the economy. I guess this is already being reflected in the most recent polls. The big question is whether this will result in a significant consumer pullback.
"As usual, there's a whole lot in Gretchen's article that doesn't add up."
If you don't read newspapers you are uninformed. If you do read newspapers you are misinformed.
Mark Twai
Bill-
that truly is the largest economic risk, a crisis of confidence.
The ABCP market is a "HUGE" problem. Moreso than most understand.
The upcoming period of earnings, the peak mortgage resets, further mark-to-market issues, hedge fund redemptions, continued ABCP disruptions, and a signifiant loss of consumer confidence will create an extremely difficult period.
"on the example docs I included was $45. How much inflation is reasonable in 15 years?"
CPI Inflation Calculator
$21.81 according to the BLS handy dandy inflation calculator or 66.81
And let's look at this part:
For years, a software system in CountrywideÂ’s subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrowerÂ’s cash reserves, a former employee said.
A borrower who has more assets poses less risk to a lender, and will typically get a better rate on a loan as a result. But, this sales representative said, Countrywide’s software prevented the input of cash reserves so borrowers would have to be pitched on pricier loans. It was not until last September that the company changed this practice, as part of what was called in an internal memo the “Do the Right Thing” campaign.
It all depends on how you're using certain terms here.
I have never ever ever allowed loan officers to "input" reserves. Ever.
The LO "inputs" the total balances of all the borrower's asset accounts. The LO inputs the amount of cash the borrower spends at the closing table on fees and points.
The system calculates a PITI payment. It calculates the "after closing" assets by subtracting the closing costs and downpayment from the total assets. It divides the remainder by the PITI to get "months of liquid reserves."
It's nuts to just let someone type a number into "reserves." You get bad data.
This doesn't, um, "add up" to me.
Tanta-
Bottomline, is Gretchen full of the brown stuff or was their system flawed?
I really want to know why GM has such a mission for going after CFC with every misunderstood bit of nonsense she can imagine.
She listens to a bunch of anonymous disaffected former employees or brokers tell her all kinds of shit that she doesn't understand. At minimum, she doesn't ask anyone for a reality check.
For god's sake, the rest of us in this industry have been having our lunches eaten by CFC, the "Wal-Mart" of mortgages, for years! They are the 800 pound gorilla! They grind little community banks into the dust because of their cost structure.
It's just mind-bending to see them held up as the poster-child for junk fees and stuff.
Did you notice the two paragraphs on "profit margin" that move from gross to net without notice?
GM is a sorry excuse for a business reporter. And getting sorrier by the day.
risk capital, I don't know. I'm not assuming that CFC is innocent. I'm not assuming they're guilty. I'm not interested in assuming jack shit. But GM clearly is.
I'm just saying that I can easily imagine a context in which what you just read is perfectly innocent. But a disaffected former employee who didn't understand it could have told you a version of it that sounds sinister.
"Did you notice the two paragraphs on "profit margin" that move from gross to net without notice?"
No, I skimmed the piece and immediately dismissed it as garbage.
I would bet you that if CFC has a legally-valid way to keep from having to send out 1099s, it will go there.
That's a classic example of how they save money. I won't argue the merits of not sending a 1099 when it is optional. I will simply point out that it's right up CFC's alley to wring cost savings out of employees. They're famous for that.
Brokers are also famous for wanting to be "sole proprietors" when it suits them and LLCs when it suits them. Fire up the pity party.
"I'm just saying that I can easily imagine a context in which what you just read is perfectly innocent. But a disaffected former employee who didn't understand it could have told you a version of it that sounds sinister."
Agree, that can be said for any media report today, the ability to distinguish between garbage and fact is paramount.
That said, I think your previous industry is important due to its contribution to the current malaise, but, honestly (and this is just me, please do not be offended) I am past the specifics (as to the mechanics) and am more interested in the continued spillover. The continued tightening of standards is interesting to me and the speed at which this is taking place. The continued decrease in participants and the ability to absorb the demand, the ultimate effects on pricing and the potential for a decrease in the wealth effect.
But, the BS of interviewing disgruntled ex-employees and picking apart $30-$85 chargesis a waste of space when their are far more pressing issues at hand, ie the ABCP markets.
re cfc, if the comptroller is saying that b of a cannot convert their securities to common, am i right in saying that b of a made an unsecured loan to them at 7 1/4% with no equity upside?
CNNMoney.com: 404 Page Not Found
Potential Sachsen sale-
Page not found- msnbc.com
Well, risk capital, I'm not so sure about that.
A whole lot of congresscritters are getting up on their hind legs right now about regulating the mortgage business.
Some people may well have a vested interest in throwing out red herrings about $30-$85 charges. Get congress fired up about that, and all we'll get is some new "consumer protection laws" that "protect" us from overcharges that may not even, in this case, be overcharges.
Similarly, it does matter, even to the ABCP markets, whether borrowers are true subprime credit risks who are getting (underpriced) loans or they are decent credit risks who are getting (overpriced) "subprime" loans. It certainly matters to any conversation that throws the term "demand" around.
Finally, I've read some seriously underinformed hysterical tin-foil stuff lately about ABCP. Unpacking it is tedious and geeky and so on, but I for one care whether ABCP is truly a "pressing issue" or not.
"but I for one care whether ABCP is truly a "pressing issue" or not."
As do I.
Tanta - I want to second your remarks. The fees cited seem in the normal range to me. In the last few years I've never seen a tax service fee less than $75.00 even in Booniesville, GA, and if I did, I'd be wondering how qualified the service was. Life of loan fees cost more, and the flood service fee sounds like it is a life-of-loan monitoring fee too.
I think the confusion here is between life-of-loan fees and one-time fees. I think Gretchen doesn't know what she's writing about and was misled by some people who either had an axe to grind or didn't know either.
As for the tri-merges, they are probably getting the kind in which the format is XML and feeds directly into your system for processing and analysis. The fee for that sounds reasonable too, since you are allowed to charge (by regulation) for time spent in analysis. The various services do charge more for tri-merges (three scores), since you are getting a service from several different companies instead of one. Not surprisingly, each separate company wants to be paid.
BTW, everyone, life-of-loan fees are higher, and are counted as prepaid finance charges. The brokers she spoke to ought to know the difference, although some brokers are so ignorant of regulations that it's truly terrifying.
As for cash reserves, if Countrywide really had no way to enter a borrower's cash balances in their accounts, it would be remarkable. But since they originate for conforming too, which requires the URLA/UT, I can't conceive of this.
I dislike Countrywide for reasons that are OT, too. Believe me, the last thing I ever expected to be doing was defending them in a forum like this.
Oh, and as for late fees, gurgle, glumph. Everyone charges them. I bet I could do a much better hack job on Countrywide than this.
Oh, and Tanta, did you catch the bit about not distinguishing between serviced and originated loans? Can't blame Countrywide for loans they did not originate.
Thanks for keeping the world straight on this topic. You folks are at the core of this slow motion train wreck.
Gretchen is in the macro-top down financial reporting school. This started as a bottom-up micro problem, the lack of concern for the solvency of the plankton. Don't think they teach that in the Ivy leagues.
Just to show you how pervasive this top-down bias is, heck, we still have ECONOMISTs that can't grasp the ramifications of leverage & insolvency:
Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.
NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.
NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years.
I'm all in favor of not getting lost in the detail weeds and keeping our eyes on the big picture.
Part of the big picture is stock analysts and shareholders who reward big fat consolidated 800 pound gorillas who lay off employees and cheat on corporate taxes and stuff. They punish companies who try to avoid that. It's a big social and economic problem. I see CFC as the former who is now somehow being accused of driving costs up instead of down. That's real Alice-in-Wonderland to me.
Then there's the "too big to fail" problem. I have said several times that I worry about CFC's servicing platform, because it has gotten too big to fail from a consumer-protection standpoint. You just can't have 1 out of every 10 mortgages in this country not get payments processed correctly next month.
Yet the industry will tell you we need servicers of CFC's size in order to achieve the efficiencies and economies of scale that keep costs down to consumers.
It's worth everyone's time to know, in fact, whether CFC keeps costs to consumers down or not. If they're "too big to fail" and they charge boutique fees, why is anyone buying shares?
I don't know whether useful idiots like GM need Morgages 407 or Econ 101.
Couple of questions:
Was talking with a friend last night that told me that he had invested in some condos locally last fall. It seems that his brother, who is in house council for a couple of developers, got him into these deals. The developers in question put up the 20% downpayment and are paying the monthly payments. Of course CFC is the mortgage company on all 3 condos.
The developers needed to do this in order to reduce inventory so that they could borrow more from the bank...and then build more. The developers agreed to pay him $20,000 a year (per condo), as long as he owned them.
First off, is this even legal?!?
When I asked what type of mortgage they had he didn't even know. He has had other dealings with these guys that has promoted a high level of trust. Here is what I was able to get:
-His payments on all 3 are around $6200 a month, in addition to taxes (no impound)
It doesn't sound as if these are weird teaser rate neg-ams...which is good. Given that his entire family has invested in these condos, including his brother who is in house council, I asked him to try and dig up some more info. Any thoughts?
revolving debt-
Investors.com - Page not found
i think Rita Skeeter is going for the pulitzer with her CFC series.
If I recall correctly from some long meeting I didn't want to be in, the 1099 is sent to the "licensed brokerage." So if Leopard Print, LLC employs 10 loan officers, LP gets the 1099 and deals with the commissions paid to its own LOs.
I keep getting hung up on that word "commission" in the article. Wholesalers like CFC do not usually pay "commissions" to independent brokers. They pay yield spread premiums to the brokerage. The brokerage pays commissions to its LOs.
Tanta - the yield spread could still be a 1099 but corporate entity to corporate entity. That is how they pay me & I pay myself...
Widgit Master pays dryfly inc via 1099... and they too call them 'commissions'... dryfly inc then employs dryfly as an employee (regular salary - full time) and pays dryfly's wife via 1099 to do the books (part-time regular work) & pays his daughter via 1099 to translate Spanish docs from the Maquilla's (occasional work)... Widgit master doesn't give a flying fridge how dryfly inc gets it done... jus' git'er done.
The developers needed to do this in order to reduce inventory so that they could borrow more from the bank
The developers generally need a certain percentage of units "conveyed to an owner-occupant" in order to meet either their own lender's guidelines, or to allow prospective buyers to get a "conforming" loan on the remaining units.
(I'm not talking just loan amount here. Standard rules for jumbo or not is that a project has enough "presales" of units before a unit buyer can get standard loan terms.)
Sounds like a scam to me.
They exported their deflation pain to the rest of the world.-dryfly
i would hardly characterize it as pain. its more like love and their low prices have been eaten up voraciously by the rest of the world esp. the USA
Right, dryfly. So if CFC sends a 1099 to dryfly, Inc., then it has fulfilled its obligation. If dryfly Inc. doesn't give a 1099 to Mrs. dryfly, then it isn't CFC's fault.
Go back and read GM/"Rita Skeeter"'s article, and see if you can figure out who didn't get a 1099 from whom.
@ Bill:
Same emphasis (same article?) in our Sunday Biz section lead article.
Telegram.com - A product of the Worcester Telegram & Gazette
@ risk capital:
[marginally tin foil]
Orderly container enlargement strategy -- admit to general mortgage crisis, don't (yet) mention ABCP.
Best regards,
i don't know how newspapering works, but these articles are clearly getting by the editors...isn't there some sort of 'spot check the claims in the article' process, especially for articles trying to slam someone? do they just check her spelling and make sure there are spaces btwn the ellipses, then shoot it out?
Vader: Higher wages? One the way!
site map - azcentral.com - arizona web site
Labor shortages coming to a town near you !
Yesterday's article was about the labor shortages in Montana/Wyoming because of the energy boom. What I find particularly humorous is the comment about maxing the HELOC and going home to Mexico or on to the next boomtown;-}
Tanta, guess what? GMAC is no longer servicing my loan as of Sept 1- some outfit in New Jersey I have never heard of is going to be doing the honors. I can't wait until they screw up. I am on a first name basis with the Director of DFI here. I think I can fashion a complaint to make a servicer's hair turn white.
The financial strain is starting to show in the system and a RTC style solution is going to be imposed due to crisis.
Dryfly is the winner as the most accurate! Stagflation with everything that is a world commodity costing a lot more, and local real estate sucking and not being built. Americans will still buy stuff, they just won't buy a huge stucco shack to store it in! Oh yeah, they will be very nasty to the folks on the bottom of the barrel as they slide down the prosperity ladder.
America's great growth machine will stop dead in it's tracks due to higher costs and fewer buyers. On top of it all, the boomers were counting on selling their houses and using the proceeds to retire somewhere cheaper- sorry folks, the great housing slot machine payout is over.
Someday this war's gonna end...
Thing is, I've worked as a "contractor" for a consulting service that paid me with a W-2. They liked doing that, and since they offered a 401(k) I didn't complain. I had colleagues who did complain, because they wanted to play around with Schedule C, and so they wanted 1099s. The company basically said no, they would not offer a 1099 option for contractors.
It is in the back of my mind, given how this article keeps confusing "sales reps" with "brokers," that you have a case of someone who was actually a contract employee with CFC, and got paid commissions with a W-2, wanting to get a 1099 at the end of the year, as she got from other deals she did that were truly brokered.
Actually I sometimes pay wife & daughter via W2 also. It depends on how much direction I give for the project. There have been times were both 'worked' in my home office answering phones & sorting parts - highly directed & dedicated to my biz mission and clearly W2 work & paid out as such.
My wife's bookkeeping is anything BUT directed by me (LOL) and so is my daughter translating... those are completely at their own discretion & schedule... Like outsourcing payroll... I just need results at a certain date.
Having been there & done that - my guess is CFC is in the clear if they DON'T direct these 'broker' folks & even clearer if they are corporate entities like me (not individuals).
If they are individuals & there is a paper trail of CFC micromanagement... then CFC is in real hot water.
Most situations though are in between - gray cats at night.
"and see if you can figure out who didn't get a 1099 from whom"
I have reread several times. There is no way to tell which way is up or down or sideways or anything else.
I am sure we will get a press release from CFC tommorow on why this whole story is wrong...
On the 1099 thingee, there is also the possibility that in a few cases, the address on the 1099 was incorrect. It'd depend on sample size.
I'd be interested in who wrote the check the folks are supposed to have received. CFC or fly by night company who kept the income and SS withholding and is now gone.
As always, human error and lying are part of the universe of possibilities.
Effectively 'pushing on the string' where no one is buying because the $ are not going to the buyers and $ in circulation dry up while $ in some assets explode to infinity and beyond.
-vader
so vader, does this explosion to infinity incl. the stock mkt?
Right, dryfly. So if CFC sends a 1099 to dryfly, Inc., then it has fulfilled its obligation. If dryfly Inc. doesn't give a 1099 to Mrs. dryfly, then it isn't CFC's fault.
Or a W2 to Mrs dryfly - either or. But that's my skin not CFC. Only exception would be if there was no corporate shell between CFC & dryfly family - then if CFC pays us it has skin in the game.
I can't imagine they'd be as stupid as to do that. None of the companies I 'work' for would sign (or even talk to me) unless I had set up dryfly inc as a buffer and all my widgit master inc principals are far smaller then CFC.
Its a two way firewall.
There maybe a story here but the one Gretchen is telling isn't making sense.
But I'll read it again (in the daylight, focusing on it & not the gold bugs, sober & with coffee instead of cheap Bordeaux).
Man that'll be homework... I hated homework.
Any speculation about Bernanke's housing comments (upcoming speech)? Will he make anything clear or just fudge? Will he lay out turf boundaries anticipating congressional action? Will he take anybody to the woodshed? Will he just go academic and set out objective facts on all sides of all questions but never make a conclusion?
It depends on how much direction I give for the project.
That was part of the big heartache some of my fellow consultants were having over getting a W-2. They thought it meant they were being treated like some micro-managed peons instead of Big Important Consultants.
One of the owners of the company basically pointed at me and said, "You think we're telling her what to do? You think anybody is telling her what to do? Why don't you go over there and tell her what to do, and see what happens? Wait, let me put my coffee cup down first."
some outfit in New Jersey
Not Cherry Hill, NJ by any chance?
@ MOM:
re: "As for cash reserves, if Countrywide really had no way to enter a borrower's cash balances in their accounts, it would be remarkable. But since they originate for conforming too, which requires the URLA/UT, I can't conceive of this."
I was just reading parts of NYT article to a CFC mb. I believe this mb works in Full-Spectrum (CFC's subP division) so this may explain your question.
Mb related several experiences of CFC's software not accepting input for borrower's cash balances. Borrowers who qualifed for Alt-A with cash balances, were only offered SubP.
Best regards,
waaaaaaaaaay upthread there was a question about the outlook for GSE ARM MBS defaults...the MBS will have zero defaults, as always, because they're guaranteed. the loans will surely have some defaults, i think fannie said they're expecting 5 or 6 bps of losses in 2007. it's been like 1 bp for the last few years.
That was part of the big heartache some of my fellow consultants were having over getting a W-2. They thought it meant they were being treated like some micro-managed peons instead of Big Important Consultants.
One of the owners of the company basically pointed at me and said, "You think we're telling her what to do? You think anybody is telling her what to do? Why don't you go over there and tell her what to do, and see what happens? Wait, let me put my coffee cup down first."
LOL. My world exactly.
The biggest reason widget master wants me to have my own corp to pay myself is the fear of liability.
1) I tell some engineer how to use our parts & he does... next thing we know the bridge over the Mississippi is in the river... dryfly inc's pockets are a lot smaller than widget master's and lawyers all learn that the first day of law school.
2) might crash into a school bus on a sales call... if I'm dryfly inc is my problem... if not it's widgit master.
Regardless anytime I get new sales managers (typically from megacorp int'l and recently hired by widget master) who wants to 'micromanage' me... I ask them if they know where to send my W2 and where do I go to fill out the paperwork to get on their insurance & 401K benefit programs.
That puts an end to it pretty fast. Then I can go back to fishing or blogging whenever I want.
Nope- I have been sold to Well's America's Servicing Company of Newark, NJ.
I guess I have been labeled "subprime"
Time to start documenting everything.
What a PITA- but as usual I expect the worst and am not disappointed.
Now to see if they can find my paperwork or if they just start asserting crap.
Someday this war's gonna end...
Did GM make this youtube video:
YouTube
- Mozilo Monster
Thing is, I've worked as a "contractor" for a consulting service that paid me with a W-2.
a consultant, eh? did you provide 'strategic insights' and 'thought leadership'? AHAHAHAHAHA.
sorry i couldn't help myself.
Tanta-
i asked CR about this last nite and he referred me to you:
do u have any sense about how hybrid and ARM MBS's from FNM, GNMA, or FHLMC will hold up in the current credit crunch? is their any default stats on this group?
Falcor:
Actually, the article on the front page of my paper has a lot about mechanisms--home mortgages are securitized and how it is important for the securities to be attractive to investors. Less sophisticated than CR Blog but quite a lot about how connections in the economy link subprime to broader issues of debt, leverage and liquidity.
Also, some direct suggestions on how to conservatively improve one's financial situation, by saving, paying off credit, qualifying for good loans etc. Not much of the anectodal stuff about how "Sally and Sam" got into trouble with their mortgage.
We're also having trouble with property taxes, which have been historically low in Indiana. However the latest taxes are up 75% for some people. Property taxes are the second of three front page issues.
Bill said: "It's rather unusual to have an economic story featured so prominently. I have to believe that people who do not normally follow business news will start being less confident in the economy. I guess this is already being reflected in the most recent polls. The big question is whether this will result in a significant consumer pullback."
There was a story on the front page of my local paper today about the forecast nationwide drop in housing prices.
However, by the time such stories hit the front page of a local paper that's more indicative of a "saturation point" when the last people to "get it" finally do. The information is now ubiquitous and everyone knows it now.
A sentiment low-point, like "The Death of Equities.":)
Sebastia
bacon dreamz
thanks for the input. i wanted to apply this info to the ongoing success of outfits like MFA (mortgage reit) and Thornburg. why would Thornburg be struggling?
Seb
how do u come up with this stuff? i hope u don't make investment decisions based on that type of anecdote. the housing unwind will take yrs to unfold much like the buildup.
idoc, Thornburg's problem is its leverage and its hedges against its interest rate risk, not its credit quality.
Thornburg made a lot of loans to very high quality borrowers at razor-thin spreads, because that was back when we priced "what risk?" with "what spread?" You have to lever up a portfolio like that to make any money off of it.
There's also a "duration" problem in play here. Outfits like TMA get hosed, sometimes, when those low-rate loans stay on the books for a long time. The borrowers won't refi because prevailing rates are much higher than what they got in 2004. But if TMA financed its operations with shorter-term money, to get the spread, they're hosed when their cost of funds reprices to market and the mortgages don't.
The GSEs basically exist to buy fixed rate paper (or ARMs with long initial fixed period). They really don't take tons and tons of credit risk. They take tons and tons of interest rate risk. But since the S&Ls blew up 20 years ago after having kept a bunch of fixed rate loans they couldn't hedge, it was important to have the GSEs there to take fixed rate risk.
All this talk about ARMs and credit risk, and we sometimes forget that somebody has to pay the hedge cost of a 30-year fixed rate of interest. In an ARM, the borrower absorbs the duration risk. In a FRM, the lender absorbs it. When Greenspan told consumers to take ARMs, he was telling banks not to hold FRMs in portfolio. Seems prescient now, doesn't it?
how do u come up with this stuff? i hope u don't make investment decisions based on that type of anecdote. the housing unwind will take yrs to unfold much like the buildup.
Ya but it might recede into local sore spots & be less 'national'. S&L was like that... blew up on a nation scale for a year or two... then festered in agriculture, oil patch & commodity-process industry for a decade after that. If you weren't tied to those industries or lived where they were prominent - you'd never know there was a problem.
Tanta,
I think the focus on fees and 1099s misses the point. If Morgensen's article is accurate, it appears that Countywide systematically guided borrowers into mortgage products that met its own interest rather than those of the borrowers. If the substance of this allegation is true, it will be very damaging to their reputation. When you are renting money, reputation is very important. Fairly, or not, after reading this, there is no way I would consider them for a home loa
When Greenspan told consumers to take ARMs, he was telling banks not to hold FRMs in portfolio. Seems prescient now, doesn't it?
A wink is as good as a nod to a blind horse...
a consultant, eh? did you provide 'strategic insights' and 'thought leadership'?
Nah, those were the 1099 people.
I mostly waded hip-deep into somebody's mortgage processing system and said, "Look, you can't let your LOs type in this number. You must have your system calculate this number from other inputs, and you must build edits into the system to catch inputs that are inconsistent."
Then they mostly looked at me and said, "Yeah, but what do you think about our strategic leadership?"
If Morgensen's article is accurate, it appears that Countywide systematically guided borrowers into mortgage products that met its own interest rather than those of the borrowers. If the substance of this allegation is true, it will be very damaging to their reputation.
LOL. Most of the folks I know looking for loans all know these guys are snakes... as long as they show them the money they'll take it. I think that describes CFC clients better than somebody worrying about reputation.
"Hey Tony, nothin' personal. Its jus' business." The bulk of unwashed masses get that part pretty well - from first mother's milk to final rites, that's what they've been accustomed to hearing. CFC isn't disappointing them.
When you are renting money, reputation is very important. Fairly, or not, after reading this, there is no way I would consider them for a home loan
That's exactly the problem here. The NYT just took business away from CFC by planting doubts in your mind, fairly or not.
I assume you'll go to some competitor of CFC for your loan.
I'll further assume that some of GM's anonymous sources could be CFC's competitors.
Also, I have never in all my days heard of anyone using months of liquid reserves as the primary or even major compensatory factor for the Alt-A/Subprime distinction. FICO, yes. LTV/CLTV, yes. DTI, yes. Months reserves? Well, sure, it matters. So does number of years of employment of borrower and square footage of condo unit and a jillion other things. And this article doesn't actually say that CFC couldn't calculate reserves; it says the sales rep's pre-qual module didn't let the sales rep enter that information directly. It still strikes me as baloney.
But by all means, go to some mortgage company whose processes for handling reserves you know nothing about, as opposed to a company whose process you think you know something about.
Dryfly,
Is there some kind of 'finance rape drug' equivalent to the 'date rape drug' these PE's slipped into the punch bowl for the IB's? Sip, sip, KLUNK... wake up in the morning with a pier loan?
I think a bunch of things contribute:
1) Things had been so good for so long, everyone discounted risk. When was the last pier loan after all?
2) PE has become much more important to the IB's than it was when I was there. They've gone from important clients to critical ones. So it isn't just the leveraged Finance guys pushing for things like this, but the equity side, the M&A area etc. I'd guess PE firms generate 1/4-1/3 of all fees at this point. So when they want something, they carry great weight everyhwere in an IB.
3) IB's a ferocious competitiors when things are good. Not just for fees, but for league table rankings and lucites (deal trophies). Everybody wants to be a player. In this world, that means having your name attached to the big deals in the right way.
4) Man for man, the PE guys are better, significantly better, than IBers. Better negotiators, faster thinkers etc. So the IB's get their butts kicked in negoitiations
Now 3 and 4 were also true when I was there, so 1 and 2 are probably where the answer lies.
Alec,
I realize First Data is tight, but they look awfully recession resistant to me. More importantly, get us current up-to-date-scoop!
Now 3 and 4 were also true when I was there, so 1 and 2 are probably where the answer lies.
Thanks banker - I deal with the other end of the PE pipeline (their operations). They are pretty sharp there too. Maybe too sharp by half.
Some of the business models they've showed me seem to lack a sense of how messy the operational real world is - hard to model messiness in Excel.
Interesting time though... something I believe we will all remember, for good or bad.
re cfc, if the comptroller is saying that b of a cannot convert their securities to common, am i right in saying that b of a made an unsecured loan to them at 7 1/4% with no equity upside? houston This was way up thread. BoAs comment was that the bank could not but that the holding company could set up an entity to exercise the options.
Banker, Dryfly
i think there will be enough pain to go around for everyone. look at KKR's recent difficulties.
Ya but it might recede into local sore spots & be less 'national'.-dryfly
if i weren't seeing intl bank bailouts, huge monetary infusions by CB's worldwide, a constipated ABCP mkt, HF's blowups globally, interest rate and yield spreads spikes everywhere all as a result of our MBS, CDO global littering, i might actually agree with your supposition.
I have spent all or part of the last 30+ years looking for a date who would find this stuff fascinating. The closest I could come was my wife who listens politely and pats me on the head when my rants are over.
Someone at the Implode o Meter is claiming IMH will be done tommorow morning. Did GM write a story on them too!?!?
Impac Lending is closing on Monday!!!!
Banker,
Reading your first comment again just gave me an image of a tick and a dog.
Whatever the truth of their lending practices, 1099 practices, etc., I think it's a safe bet they will be spending a lot more money on lawyers.
The 1099 thing is really odd. I had the impression the IRS was really cracking down. My business was a Chapter S corporation and I paid myself a salary. All sorts of my customers (usually advertisers) would need me to fill out a small IRS form so as not to issue a 1099. I think it just asked for my tax status and the EIN. But the implication was that they were supposed to have this info on hand, or issue a 1099.
I t would seem absurd, but a lot of big obvious things seem to slip by the IRS these days. Like the guys who stopped paying federal taxes for ten years, had Web sites proclaiming it, etc. After the third or fourth article in a major newspaper, I think the IRS noticed.
Someone with an MBA in mortgage finance and a law degree would be well positioned for the job market of the next few years.
OK, I can't stand it.
I went to Countrywide's website and looked for broker approval.
Got invited to download the broker approval package requirements.
First little section says the first thing the broker has to submit is an IRS W-9.
https://www.cwbc.com/SignUp.asp
Someday this war's gonna end...
Tanta
so the presumption is that Thornburg had a bunch of FRM on their books that didn't keep up with the increased rates of their short term borrowings. what about an outfit like MFA that invests in hybrid or ARM from GNMA, FNM's primarily. theoretically they wouldn't be exposed to interest rate risk but quite possibly to credit risk if borrowers can't keep up with increasing int rates. where would one look in the financials to determine a companies risk in this regard esp. leverage?
Haloscan with Blackberry?
how do i configure to view comments? someone here posted links to relevant sites previousl.
Any estimate on the amount of commissions paid to brokers?
x's 10% - I wonder if this is booked as a contingent liablity?
idoc, part of what you're looking for there is the net interest margin. I suggest reading through the footnotes, since management's discussion of risk should talk about how they fund their positions.
Sorry, but I have a lot of problems. Being a crackberry addict isn't one of them. I don't even own one of the little instruments of Satan.
Crispy, I hate to get hung up again, but it depends on what you mean by commission. A wholesaler could pay a broker anything up to 2.00% (fairly reasonable) to 5.00% (atrocious, in my view) yield spread premium.
The broker's costs come out of that to get net profit margin.
Brokerages and direct lenders pay commissions to their LOs anywhere from 50 bps up. Often there are scales, so an LO makes, say, 50 bps on monthly production up to a certain dollar amount, then 65 bps to the next bucket, and so on. Smart lenders (all two of them) reduce commissions for things like in-house refis ("churning" your own portfolio). In any event I would assume a minimum of 0.50%.
Idoc,
Download Opera web browser for Blackberry at Opera browser | Faster & safer internet | Free download
Works great.. And yes, I ended up getting Opera for blackberry just so I could read the comments on Calculated Risk while sitting in the shower.
@ sebastian:
"Bill said: 'It's rather unusual to [ . . . ]
"However, by the time such stories hit the front page of a local paper that's more indicative of a 'saturation point' when the last people to 'get it' finally do. The information is now ubiquitous and everyone knows it now.
"A sentiment low-point, like 'The Death of Equities.':)"
IMO this is not a sentiment low-point indicator, this is a we've got to get in front of herd to look like we're leading moment.
Magazine Cover Indicator significance requires a major mag cover (Newsweeks, "Incredible Shrinking Dollar" at earlier dx lows, Times "Jim Bezos - Man of Year" at NDX peak, or your referenced "Death of Equities" cover at 1980s lows).
This is not yet conventional wisdom. When it is conventional wisdom a major mag cover article often marks a cyclical or secular turning point.
Best regards,
someguywhoknows,
Has your friend received any payments from the developer yet? Is there any sense that those condos could be dumped for at least $320,000 if the developer went under?
It sounds like your friend is going to be in a world of hurt if the developer goes under...
Regarding CFC and the 1099 flap: what do you suppose the chances are that KPMG (their auditor) woudn't notice a little thing like that?
Banker (regarding IBs): They've gone from important clients to critical ones.
Well, IMHO the IBs are going to take a hell of a hit 'cause there won't be many LBOs over the next year
PatinOhio,
Well, IMHO the IBs are going to take a hell of a hit 'cause there won't be many LBOs over the next year
I think they awill absolutely take a whack on writedowns on current exposure, but going forward I'm not so sure about way fewer LBO's. I think they will be done at lower purchase prices and with less leverage and with more protections for the lenders. But I don't think the business is going to go away. These has always been an ebb and flow to that part of the business. Also, remember that PE's are't just paying IB's fees on LBO's but on IPO's, acquisitions by their portfolio companies, dispositions of portfolio companies, fairness opinions, refinancings etc. Those will all continue.
Of course, everyhting above assumes we gradually work our way out of this mess (ala 1998) rather than descend into the fourth circle of hell.
someguywhoknows,
Has your friend received any payments from the developer yet? Is there any sense that those condos could be dumped for at least $320,000 if the developer went under?
It sounds like your friend is going to be in a world of hurt if the developer goes under...
Eli | 08.26.07 - 2:21 pm | #
Yes Eli,
The payments have been made since loan and sale were originated last fall. Property taxes also...the codos are slightly north of Marin county in a fairly decent area of Northern California called Rohnert Park. As far as the value, they are 1500 squarefoot condos that I feel could not fetch the $2500 a month needed to cover PITI...whether they are currently worth 320k is anybodies guess...I was just wondering if this wa legal and what the mortgage rate was....$6500 a month on $960k.
Of course, everything above assumes we gradually work our way out of this mess (ala 1998) rather than descend into the fourth circle of hell. Uh banker, what does the 4th level of hell do to my Fidelity 401K investment in "Primarily invests at least 80% of its assets in bonds included in the Lehman Brothers Aggregate Bond Index." Average maturity 4.6 years.
Thanks
Banker,
I see your point about the range of fee generating activities. I'm not sure we need to hit the forth circle of hell for IPOs and fairness opinions to dry up too. Also, if we really have a recession, won't some of those PE investments generate trouble for the PE balance sheets?
Anyhow, I appreciate you sharing your views on this blog, it helps to see different takes on these things.
Eli
Download Opera web browser for Blackberry at Opera browser | Faster & safer internet | Free download
i don't see a specific version for the Blackberry. which version did u download?
Patinohio,
I'm not sure we need to hit the forth circle of hell for IPOs and fairness opinions to dry up too. Also, if we really have a recession, won't some of those PE investments generate trouble for the PE balance sheets?
First point has some merit on IPO's less true for fairness opinions. Of cours eht eformer are more lucrative so point to Pat! On the second point, YUP! Chrysler anyone? If we really slide into a recession, thins will get ugly...descending into the fourth circle of hell
Robert,
I AM NOT A PERSONAL INVESTMENT GUY, DO NOT TAKE MY ADVICE!
That index is widely regarded as the benchmark for the overall bond world. It is weighted to reflect Treasuries, corporates, mortgages, asset backs, agencies etc relative outstandings at a given point in time. I cannot see a way where this index could ever be riskier than an equity index over any reaosnable length of time. So could you get slugged? Sure. As bad as if you owned equities? Hard for me to see.
I AM NOT A PERSONAL INVESTMENT GUY, DO NOT TAKE MY ADVICE! LOL. Sorry, the question was too subtly tongue in cheek. Seeing as the fourth circle of hell has entered into contingency planning discussions in the bankerdome, one wonders what that means to the bankerdome residents. The burning question is, if we fail to muddle through, will it be inflation/stagflation or deflation?
Robert,
Sorry, that went over my head
I struggle to see true deflation as likely.
idoc
Stocks, Art, trophy wives, boy toys or anything the elites value will be bid up in the case I suggest.
Banker: one thing I haven't seen people focus on is the IB's amount of hung up MBS pipeline. I see a lot of talk about the $300 bil in "pier" lbo or other corporate credit, but it wasn't just CFC that was going flat out pushing MBS' through the pipeline. LEH and Bear must have had a bunch funded but not put out the back door yet. Is there a $ figure associated with the pier MBS'?
mbart,
Not that I have seen. I don't actually know that the IB's buy those pools until they have them laid off, so it could be zero.
I enjoy this blog and I am not a fan of the NYT in anyway but I think Tanta's comments on this article are 100% off base. I am sure the blind followers will yell at me for stating this, but GM is a respected business journalist. She is not making stuff up - the big picture of the piece was about CFC pushing subprime and alt-a crap. That is what it clearly did. The company's rise correlates exactly to those loan types.
I am not sure who is right or wrong on this 1099 bit - but Tanta's comments are alarming. They are so biased TOWARDS CFC and against GM.
This is a great blog but with all of the internet you need to be careful who you take advice from. Tanta has exposed herself a bit in my opinion as someone that might be too anal to see the big picture for what it is - how do they say it? See the forest through the trees????
The NYT has been published since 1851 or so, it has won 95 PPs. Yeah they have had a few rouge journalists but GM isn't one of them. They are bigger than a blog of unknowns - period.
SR
dryfly,
Your point about "astroturfers" was timely.
idoc,
On your Blackberry, load the opera.com webpage.
Then, just download the Opera Mini browser that's java based.
risk capital:
As someone who has prepared data for RFPs so pension and endowment funds would invest in our hedge and private equity partnerships, I would say that Calpers may be sophisticated, but that the other pension funds are not. Once you land Calpers as an investor, then you have the "Good Housekeeping Seal of Approval" and all the other funds and endowments pile on. Unfortunately, these trend followers usually get a piece of the second, third, or fourth series of funds by which time the money management firm is regressing to the mean since the investment team that had the original great ideas has moved upstairs to company management (i.e, not actively doing the investing) or has taken their performance bonuses, quit, and to set-up their own shops.
A lot of trend following pension funds are going to be doing the big "San Diego" when all is said and done.
"The NYT has been published since 1851 or so, it has won 95 PPs. Yeah they have had a few rouge journalists but GM isn't one of them. They are bigger than a blog of unknowns - period"
Then why are you spending time reading this conversation among people who are interested in this subject? The first rule of internet is to judge the content based on the reason layout by the poster. In Tanta's case, I thought her reasons are well layout. We can choose to agree with her reasons or not. And in your case, your reason is that NYT has been around a long time and recieved awards. How does it translate into GM piece is valid? As you noted, NYT has some problem with the other journalist before and what make you think this publication is not one of it? I am very short CFC. And I believe CFC did push people who can qualify lower cost loan to subprime loan. It is immoral but not illegal. And they will have a great deal of problem convince new borrowers that they are not snake oil salesman. But the 1099 issue is full of questions. I just laughed at the fee issue. Those fee are disclosed fee in the truth in lending form. So if someone decide to pay more for their fee, who is to argue with them?
We will find out soon enough tommorrow. If CFC doesn't put together a very strong response, I think they are gonig to have a very difficult time to be a competitve mortgage lender. And the truth of the other issues will come out as more media outlets investigate the stories.
Falcor Mb related several experiences of CFC's software not accepting input for borrower's cash balances. Borrowers who qualifed for Alt-A with cash balances, were only offered SubP.
That is truly whacked, then. Thanks for the input - I tried to find someone who really knew their systems, but didn't get any hits.
I really do not like Countrywide because of some of the stuff I've seen them do, but not to consider cash balances is one of the craziest things I can imagine. Certainly it is not in the borrower's interest, esp. for subprime.
xofruitcake - I am still waiting for that CFC response????? I guess I missed it.
GM is a fine business reporter - Tanta does great work but her comments on this thread are silly and as an investor short CFC you should clearly understand why.
Look I think its a great blog, I appreciate the views and the work but I disagree with Tanta's view on the article. Her "reason layout" on this point is WEAK - boarderline anal and clearly she has something against the author. Yeah Tanta has high standards, pls give it a break, GM is not some street.com hack.
My point about the NYT is that they have fact checkers - let's wait and see how this plays out. Maybe GM wasn't clear on the fee stuff or 1099 stuff - who cares. She has deadlines, the bigger part of the story is dead on.
As for the legality of pushing people into loans with HIGH prepay fees when they would have qualified for better rates - humm let's see how this plays out in the court of public opinion. This is playing out just like WCOM, Q and ENE - not to mention NEW and LEND.
SR
sorry that was me above.
SR