The bank (WM) reported nonperforming assets comprising 1.40% of total assets as of June 30, double the level from a year ago. The thrift's net income rose 9% from a year ago in the second quarter, but its ratio of reserves to nonperforming loans dropped to 43.4% -- its lowest level in more than five years.
Meanwhile, Washington Mutual's ratio of nonperforming assets to core capital and loan-loss reserves was 19.17% -- a very high level for a large bank
If you add this to the picture....
Capitalized interest recognized in earnings that resulted from negative amortization within the Option ARM portfolio totaled $1.07 billion and $292 million for the years ended December 31, 2006 and December 31, 2005.
The total amount by which the unpaid principal balance of Option ARM loans exceeded their original principal amount was $852 million, $681 million, $474 million, $298 million, and $160 million at December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006 and December 31, 2005. ( up 432%!!!!!)
it is looking like a perfect storm for WM...
Disclosure: Short KBW Mortgage Finance Index (including WM)
Funny that he' call a near perfect storm. What do you think the "near" reflects? Kind of makes you think there is another shoe to drop, perhaps, just maybe, like, imagining what the housing market would look like if the job numbers deteriorate further? I think that would make it perfect, right? Any other likely candidates to make it to the point of perfection? I can think of a few. Whack a mole time!
Well, you don't say? Like we hadn't figured that out here months ago. Oy...
Months? Try years.
This site, patrick and thehousingbubbleblog were the few islands of sanity two years ago in the thick of the housing mania. It may be difficult to reason with people now, but two years ago it was impossible.
"IT WASNT ALL BAD The subprime mortgage industry apparently helped some people either get into homes or stay in their homes."
Is this a talking point? Why does every commentator repeat this fallacy? It seems that many good borrowers who were able to get a leg up with a questionable loan are now up a creek without a paddle as their biggest asset becomes an albatross around their neck. Honestly, how was ANYONE helped by being saddled with a home they cannot sell and get out from under without taking a huge loss?
The Japanese/German/China housewife living in her 400sq ft loft may become a little upset knowing or finding out that that the savings she put away was used to provide cheap financing to a group of (although equally hardworking) mexican migrant farmers which allowed them to buy 3500sq ft relative palaces in Fontana
I saw the latest rate sheet from WM and they're offering much better CD rates (over 5% APY) for an 8 month CD vs. under 4% APY for all other terms, including 4 year. What could be coming up in 8 months that has WM so eager to get more money in that timeframe?
Any one else feeling a little bit sad that the housing bust is now common knowledge? While "I told you so" feels good for a minute or so, I'm certain that we are going to get a non-stop blast of negativity from the same info-cretins that said "all is well" just a few months ago. This could continue for the next year, as it plays into the media's desire to see the Republican party finished off for good.
It was more fun being a contrarian.
Bottom, anybody?
w, you think that's bad, try last month's column where he decries "chicken littles" LOL. Last month: Oh you all are making too big a deal about it. This month: OK it is going to be bad but we'll all get over it.
A friend of mine in Leipzig wrote last week that Sachsen LB 'may have to be sold'. He no insider - this is the general talk in Leipzig.
And yes, I have the impression this has been a severe shock to the general public there, particularly in the former East Germany where personal fiscal conservatism is a given.
The perfect storm I see for Wamu isn't a function of housing market changes. Instead it is a funtion of lousy Wamu management decisions when times were good. Decisions such as building the subprime loan portfolio to $20 Billion, the Home Equity Loan Portfolio to $50 Billion, the Option ARM portfolio to $55 Billion, and bragging to the market not to worry because sucker investors had bought all the worst paper. Guess what, the suckers finally figured it out, and won't buy Wamus toxic junk paper (ABS) any longer, which is just another aspect of Wamu's perfect storm.
CB, I just think its funny how so many commentators preface their negative words on mortgages by saying how someone somewhere was supposedly helped so there was some good in it. It is a specious argument.
This may be true (it certainly is for me) but it is not a virtuous pleasure. We should concentrate on being on the side of reason, regardless of where the crowd is. If the crowd finally swings to the side of reason, even if for unreasonable reasons, we should take that happy moment to drive home how reason could lead someone to the same conclusion years ago and how pain could have been avoided if heed were paid.
As an aside, I continue to find extremely venal pleasure in dressing up "I told you so" in various guises.
Bottom, anybody?
Fundamentals suggest the contingency is remote, sir.
There is a great report analyzing the present state of the mortgage mess, fixing responsibility and projecting some policy directions as formulated by Weiss Research Inc.
This Report is to the Federal Reserve and is named "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis".
The Report fixes significant responsibility with the Greenspan Fed and lists institutions that are most at risk for problems given their exposure to non-performing loans as a percentage of the institutions total risk based capitol...and several other measures.
I first saw the report referenced at Elaine Supkis' blog "culture of life news" and she deserves a hat tip. To be found in the lead article at this time, titled "the fed is responsible for the entire mortgage mess"
A "perfect storm" is supposed to be an unforeseeable conjunction of random events, with effects that are worse than you'd get just from the individual events alone. How is this a perfect storm? We've got "rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity" -- these aren't independent events which are coincidentally occurring at the same time. They're all symptoms of the same one underlying cause. REIC-types like to list out all these manifestations of the crash to make it sound like it's more complicated and less predictable than it really is. Imagine: higher foreclosures and higher inventory, at the same time! Maybe one or the other, but both? Who could have predicted that? Hmm, maybe anyone whose salary didn't depend on NOT predicting it....
"Wamus nonperforming loans have doubled from the June 30th quarter of 06 to the most recent quarter, from .62% to 1.29%, but excludes Excludes nonaccrual loans held for sale (whatever the hell that means). My best guess is that these are the loans that have not been earmarked for the investment portfolio, and are being held for sale, thus are not held under the accrual accounting rules. If this is the case, these numbers were delivered just before the massive upheaval in the markets where investors totally shunned the MBS products. If my hunch is correct, then Excludes nonaccrual loans held for sale category will be forced into the investment portfolio, and this may look bad. The banks tried to sell off the garbage, and Wamu wrote its fair share of it."
Furthermore:
"Their tangible equity to total capital is 6.07%, but includes the footnote Excludes unrealized net gain/loss on available-for-sale securities and derivatives, goodwill and intangible assets (except MSR) and the impact from the adoption and application of FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 31, 2006. Minority interests of $2.94 billion for June 30, 2007, $2.45 billion for March 31, 2007 and December 31, 2006 and $1.96 billion for September 30, 2006 and June 30, 2006 are included in the numerator. Now this is scary, for these are most likely the derivatives that have no credible bid, thus cannot be priced and/or marked to market. Exactly what is the unrealized net gain/loss and how is it derived? Were talking 20.1 billion in subprime, and almost 30 billion in multi-family loans with a total of 206.7 billion dollars of loans in their portfolio. Wamu does not want high defaults or the impairment of their collateral. I think both are a forgone conclusion due to the aggressive underwriting to obtain these loans, specifically through the Option ARM product. How much so is the question. The Home Loans group within Wamu has taken consistent losses for the last 4 quarters, primarily due to provisions for losses and non-interest expenses."
Perfect Storm? Housing was simply the opening cloudburst.
There are so many other powerfully dark systems moving in that most don't have a clue about.
risk capital mentioned "pensions" on a prior thread. That's huge. For years government & business have underfunded their pension obligations by consistently overstating expected future returns. What happens when those returns are severely negative?
Why does Ben Stein get to string together some words for a major national newspaper without anything particularly significant to say? "Prices are down, it's a great time to buy". "Prices are up, it's always a great time to buy". "In the long run, the stock market always goes up".
Well of course, the Fed has to do its part and lower rates for the sake of the impoverished homeowner because even though everything is fine, you have to keep the economy on an even keel.
billygoat - Reminds me of the time I actually saw Ben Stein shoot the finger on the teevee. Yes, he really did it on national teevee.
Moodys makes me moody.
Mama - please fill a friend of the court brief in Aliotta et al. v. FDIC, D.D.C. Case No. 1:05cv02325 - our certified class action case pending against FDIC - all of the plaintiffs were age 50 or over when it was filed in 2005.
Haw gng, forgot about that one. And speaking of Lereah like credentials, but in a resume padding sorta way, the note on NYT piece describes him as an 'economist' -his own bio says he's the son of an economist and has an got an undergrad degree in economics (grad. deg in law).
Nice credentials, but does an undergrad degree in economics make one an 'economist'?
Ben Stein: Nobody Elected The Media to Anything (while searching YouTube for Bengy shooting the finger I found this gem poking it at the media and free speech. Next he will go after bloggers or has he already?
can anyone help me understand the following Washington Mutual 2Q '07 document from Reggie Middleton's Boom, Bust & Bling blog? Are there any hidden timebombs lurking in WM future?
Seems to be - specifically WaMu originated a lot of OptionARM garbage that they couldn't unload b4 the credit mkts seized up. Right now these unsold things are off the official balance sheet pending being unloaded. However they may very well NOT be able to be unloaded and so will come back to WaMu and could hurt reserves and, later, NPL (non performing loans) and NPA (assets) as many of these things inevitably default and REO.
With that said, I was with some senior WaMu folks last night and (casually) brought up some of these issues. They were aware of the speculation but weren't too worried. Their attitude seemed to be "we have plenty of reserves, if some of this stuff starts to bite, we can cover" etc. Not strong complacency a la "it can't happen here" but odds favored WaMu still being around as the dust settles. They are actually hiring into the HLCs and looking to expand as many other mtg sources go kaput. One area manager shared that they had a record month in August and Sep was going very strong. A lot of folks out there need help and, the ones that can be helped at least, don't have near as many places to go. Both conforming and Jumbo seem to be going strong. There's also strength in CalHFA, VA, and other special, first time homebuyers, local programs.
Well, you don't say? Like we hadn't figured that out here months ago. Oy...
Wamu scare monger's
Tell us when the storm is perfect...
when you take your last breath
Moin,
this is from an earlier piece via the Street.com
The bank (WM) reported nonperforming assets comprising 1.40% of total assets as of June 30, double the level from a year ago. The thrift's net income rose 9% from a year ago in the second quarter, but its ratio of reserves to nonperforming loans dropped to 43.4% -- its lowest level in more than five years.
Meanwhile, Washington Mutual's ratio of nonperforming assets to core capital and loan-loss reserves was 19.17% -- a very high level for a large bank
If you add this to the picture....
Capitalized interest recognized in earnings that resulted from negative amortization within the Option ARM portfolio totaled $1.07 billion and $292 million for the years ended December 31, 2006 and December 31, 2005.
The total amount by which the unpaid principal balance of Option ARM loans exceeded their original principal amount was $852 million, $681 million, $474 million, $298 million, and $160 million at December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006 and December 31, 2005. ( up 432%!!!!!)
it is looking like a perfect storm for WM...
Disclosure: Short KBW Mortgage Finance Index (including WM)
I guess the guys in the golf shirts cant run a bank any better than the corralled guys in Brooks Brothers suits.
It could be more perfect when servicers like WaMu and CW go under and their servicing departments are skeletonized and have low morale.
Moin again,
here is the link
Is WaMu the Next Countrywide?
Funny that he' call a near perfect storm. What do you think the "near" reflects? Kind of makes you think there is another shoe to drop, perhaps, just maybe, like, imagining what the housing market would look like if the job numbers deteriorate further? I think that would make it perfect, right? Any other likely candidates to make it to the point of perfection? I can think of a few. Whack a mole time!
Well, you don't say? Like we hadn't figured that out here months ago. Oy...
Months? Try years.
This site, patrick and thehousingbubbleblog were the few islands of sanity two years ago in the thick of the housing mania. It may be difficult to reason with people now, but two years ago it was impossible.
CR and patrick kept me sane.
Cheers,
prat
BTW, I may disagree with aborgast politically, but damn can he call interday market movements using his yen hypothesis.
props
Cheers,
prat
OT
Ben Stein from yesterday's NYTimes
"IT WASNT ALL BAD The subprime mortgage industry apparently helped some people either get into homes or stay in their homes."
Is this a talking point? Why does every commentator repeat this fallacy? It seems that many good borrowers who were able to get a leg up with a questionable loan are now up a creek without a paddle as their biggest asset becomes an albatross around their neck. Honestly, how was ANYONE helped by being saddled with a home they cannot sell and get out from under without taking a huge loss?
EVERYBODY'S BUSINESS; Lessons From the Pits of Travel and Investment - NY Times
The Japanese/German/China housewife living in her 400sq ft loft may become a little upset knowing or finding out that that the savings she put away was used to provide cheap financing to a group of (although equally hardworking) mexican migrant farmers which allowed them to buy 3500sq ft relative palaces in Fontana
@Saver'sOtheWorld
The German housewife is already in coma after she heard that the IKB and Sachsen LB had to be bailed out for billions from the German tax payer...
I saw the latest rate sheet from WM and they're offering much better CD rates (over 5% APY) for an 8 month CD vs. under 4% APY for all other terms, including 4 year. What could be coming up in 8 months that has WM so eager to get more money in that timeframe?
Any one else feeling a little bit sad that the housing bust is now common knowledge? While "I told you so" feels good for a minute or so, I'm certain that we are going to get a non-stop blast of negativity from the same info-cretins that said "all is well" just a few months ago. This could continue for the next year, as it plays into the media's desire to see the Republican party finished off for good.
It was more fun being a contrarian.
Bottom, anybody?
w, you think that's bad, try last month's column where he decries "chicken littles" LOL. Last month: Oh you all are making too big a deal about it. This month: OK it is going to be bad but we'll all get over it.
It's almost Lereah like..
EVERYBODY'S BUSINESS; Chicken Little's Brethren, on the Trading Floor - NY Times
Why does every commentator repeat this fallacy?
Which Fallacy is it?
Why does every commentator repeat this fallacy?
Fallacies
Isn't this what the Telecom guys said in 2001 when they all went bankrupt?
Seems to me it's always someone else's fault regardless of the industry.
jmf,
A friend of mine in Leipzig wrote last week that Sachsen LB 'may have to be sold'. He no insider - this is the general talk in Leipzig.
And yes, I have the impression this has been a severe shock to the general public there, particularly in the former East Germany where personal fiscal conservatism is a given.
The perfect storm I see for Wamu isn't a function of housing market changes. Instead it is a funtion of lousy Wamu management decisions when times were good. Decisions such as building the subprime loan portfolio to $20 Billion, the Home Equity Loan Portfolio to $50 Billion, the Option ARM portfolio to $55 Billion, and bragging to the market not to worry because sucker investors had bought all the worst paper. Guess what, the suckers finally figured it out, and won't buy Wamus toxic junk paper (ABS) any longer, which is just another aspect of Wamu's perfect storm.
Alo, too funny.
CB, I just think its funny how so many commentators preface their negative words on mortgages by saying how someone somewhere was supposedly helped so there was some good in it. It is a specious argument.
It was more fun being a contrarian.
This may be true (it certainly is for me) but it is not a virtuous pleasure. We should concentrate on being on the side of reason, regardless of where the crowd is. If the crowd finally swings to the side of reason, even if for unreasonable reasons, we should take that happy moment to drive home how reason could lead someone to the same conclusion years ago and how pain could have been avoided if heed were paid.
As an aside, I continue to find extremely venal pleasure in dressing up "I told you so" in various guises.
Bottom, anybody?
Fundamentals suggest the contingency is remote, sir.
Cheers,
prat
There is a great report analyzing the present state of the mortgage mess, fixing responsibility and projecting some policy directions as formulated by Weiss Research Inc.
This Report is to the Federal Reserve and is named "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis".
The Report fixes significant responsibility with the Greenspan Fed and lists institutions that are most at risk for problems given their exposure to non-performing loans as a percentage of the institutions total risk based capitol...and several other measures.
Fascinating reading.
http://www.federalreserve.gov/SECRS/2007/August/20070814/OP-1288/OP-1288_20_1.pdf
I first saw the report referenced at Elaine Supkis' blog "culture of life news" and she deserves a hat tip. To be found in the lead article at this time, titled "the fed is responsible for the entire mortgage mess"
Culture of Life News
I found the pdf quicker to download at elaine's site for some odd reason...the direct url took many megs and minutes to view.
CR and Tanta, Thanks for your great blog.
Geoff -
"Kind of makes you think there is another shoe to drop,"
A near perfect storm is when the bankers break out of their bankers pen and discover all the bad loans WaMu has been issueing during their captivity.
Sorry couldn't help it, god I hate those ads.
A "perfect storm" is supposed to be an unforeseeable conjunction of random events, with effects that are worse than you'd get just from the individual events alone. How is this a perfect storm? We've got "rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity" -- these aren't independent events which are coincidentally occurring at the same time. They're all symptoms of the same one underlying cause. REIC-types like to list out all these manifestations of the crash to make it sound like it's more complicated and less predictable than it really is. Imagine: higher foreclosures and higher inventory, at the same time! Maybe one or the other, but both? Who could have predicted that? Hmm, maybe anyone whose salary didn't depend on NOT predicting it....
From Reggie Middleton's Boom, Bust & Bling Blog - HAS MOVED TO REGGIEMIDDLETON.BOOMBUSTBLOG.COM!!!: Yeah, Countrywide is pretty bad, but it ain’t the only one at the subprime party… Comparing Countrywide to its peers
"Wamus nonperforming loans have doubled from the June 30th quarter of 06 to the most recent quarter, from .62% to 1.29%, but excludes Excludes nonaccrual loans held for sale (whatever the hell that means). My best guess is that these are the loans that have not been earmarked for the investment portfolio, and are being held for sale, thus are not held under the accrual accounting rules. If this is the case, these numbers were delivered just before the massive upheaval in the markets where investors totally shunned the MBS products. If my hunch is correct, then Excludes nonaccrual loans held for sale category will be forced into the investment portfolio, and this may look bad. The banks tried to sell off the garbage, and Wamu wrote its fair share of it."
Furthermore:
"Their tangible equity to total capital is 6.07%, but includes the footnote Excludes unrealized net gain/loss on available-for-sale securities and derivatives, goodwill and intangible assets (except MSR) and the impact from the adoption and application of FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 31, 2006. Minority interests of $2.94 billion for June 30, 2007, $2.45 billion for March 31, 2007 and December 31, 2006 and $1.96 billion for September 30, 2006 and June 30, 2006 are included in the numerator. Now this is scary, for these are most likely the derivatives that have no credible bid, thus cannot be priced and/or marked to market. Exactly what is the unrealized net gain/loss and how is it derived? Were talking 20.1 billion in subprime, and almost 30 billion in multi-family loans with a total of 206.7 billion dollars of loans in their portfolio. Wamu does not want high defaults or the impairment of their collateral. I think both are a forgone conclusion due to the aggressive underwriting to obtain these loans, specifically through the Option ARM product. How much so is the question. The Home Loans group within Wamu has taken consistent losses for the last 4 quarters, primarily due to provisions for losses and non-interest expenses."
@burnside
The Sachsen Lb has already been sold to another public owned Landesbank
But all the risks with the conduit will remain at the Sachsen taxpayer......
Perfect Storm? Housing was simply the opening cloudburst.
There are so many other powerfully dark systems moving in that most don't have a clue about.
risk capital mentioned "pensions" on a prior thread. That's huge. For years government & business have underfunded their pension obligations by consistently overstating expected future returns. What happens when those returns are severely negative?
True armageddon, no. Financial armageddon? Maybe.
Jesus Christ, that Ben Stein column is the dumbest thing I've read in a long time.
If I were the editor of the business section for just one day, I would run one immense headline: Everything Is Going to Be Fine. Go Back to Work.
Yeah? Well, thees ees Blog. Blog don't go back to work for happy talk.
I like Ben Stein but he's starting to sound like Larry Nusbaum.
Tanta,
Please reconsider. There was an article just six days ago that I heckled on my blog.
"Safe" Is a Happy Word
Oh wait, I based that commentary on a Ben Stein article. Nevermind.
It's almost Lereah like..
You'd think he'd been a speech writer for Nixon, or something.
Perfect Storm? So is this Cat 5 or,...?
And where are we on the naming scheme? Looking forward, what is the procedure when the alphabet is finished?
Why does Ben Stein get to string together some words for a major national newspaper without anything particularly significant to say? "Prices are down, it's a great time to buy". "Prices are up, it's always a great time to buy". "In the long run, the stock market always goes up".
Well of course, the Fed has to do its part and lower rates for the sake of the impoverished homeowner because even though everything is fine, you have to keep the economy on an even keel.
To Stein, Lereah, and all the other lying hacks:
....................../´¯/)
....................,/¯../
.................../..../
............./´¯/'...'/´¯¯`·¸
........../'/.../..../......./¨¯
........('(...´...´.... ¯~/'...')
..........................'...../
..........''............. _.·´
..........................(
..............................
billygoat - Reminds me of the time I actually saw Ben Stein shoot the finger on the teevee. Yes, he really did it on national teevee.
Moodys makes me moody.
Mama - please fill a friend of the court brief in Aliotta et al. v. FDIC, D.D.C. Case No. 1:05cv02325 - our certified class action case pending against FDIC - all of the plaintiffs were age 50 or over when it was filed in 2005.
Time to up my medication.
Haw gng, forgot about that one. And speaking of Lereah like credentials, but in a resume padding sorta way, the note on NYT piece describes him as an 'economist' -his own bio says he's the son of an economist and has an got an undergrad degree in economics (grad. deg in law).
Nice credentials, but does an undergrad degree in economics make one an 'economist'?
Ben's House - Biography
Ben Stein: Nobody Elected The Media to Anything (while searching YouTube for Bengy shooting the finger I found this gem poking it at the media and free speech. Next he will go after bloggers or has he already?
YouTube
- Ben Stein: Nobody Elected The Media to Anything
can anyone help me understand the following Washington Mutual 2Q '07 document from Reggie Middleton's Boom, Bust & Bling blog? Are there any hidden timebombs lurking in WM future?
http://reggiemiddleton.typepad.com/reggie_middletons_perpetu/files/Wamu2Q2007results.xls
TIA
TIA:
Seems to be - specifically WaMu originated a lot of OptionARM garbage that they couldn't unload b4 the credit mkts seized up. Right now these unsold things are off the official balance sheet pending being unloaded. However they may very well NOT be able to be unloaded and so will come back to WaMu and could hurt reserves and, later, NPL (non performing loans) and NPA (assets) as many of these things inevitably default and REO.
With that said, I was with some senior WaMu folks last night and (casually) brought up some of these issues. They were aware of the speculation but weren't too worried. Their attitude seemed to be "we have plenty of reserves, if some of this stuff starts to bite, we can cover" etc. Not strong complacency a la "it can't happen here" but odds favored WaMu still being around as the dust settles. They are actually hiring into the HLCs and looking to expand as many other mtg sources go kaput. One area manager shared that they had a record month in August and Sep was going very strong. A lot of folks out there need help and, the ones that can be helped at least, don't have near as many places to go. Both conforming and Jumbo seem to be going strong. There's also strength in CalHFA, VA, and other special, first time homebuyers, local programs.
So it remains to be seen...