Typical "Walk-over-yah." My experiences with them have included annoying fees, greedy fund managers who steered me into their worthless, loaded Evergreen funds (with high expense ratios), and clueless "financial advisors" who could never accept the notion that ANYTHING could every go down. Everything is a great investment - especially if bought through them - and everything only goes up! So, quickly buy something today even if you can't afford it. Right...
You know, I used to have to write these memos. (I used to have to write all the memos. If there was a memo to be written, someone would suddenly remember to fill my candy dish.)
After a while, you do learn. This is how it goes:
"Tanta, we want you to write a memo saying we aren't going to do this anymore. Period. It's over."
"Really? Really? If I write this memo and send it to 500 people, and they call up in a hour having a hissy fit, you're going to tell them this is final?"
"Yes, we are. We have Decided."
"You sure? When the "we'll take our business elsewhere" crap comes in, you'll be willing to say yes, we know that, that's why we're writing this memo?"
"Yep."
"OK. Here's your memo. Oh, and here's your retraction memo. You'll want to save that to your hard drive."
"But we aren't going to retract this!"
"Omsrhiparyyyygppt. Sorry. Looks like someone left caramels."
v. sig·naled or sig·nalled, sig·nal·ing or sig·nal·ling, sig·nals
v.tr.
1. To make a signal to: I signaled the driver to proceed.
2. To relate or make known by signals: They have signaled their willingness to negotiate.
v.intr.
To make a signal or signals.
Tanta, why has it taken this long? The statistics show that something like greater-than-70% of Option ARM loan borrowers are making the 'minimum payment', so their loan balance is increasing.
Didn't Option ARM lenders stop having a market for these loans, say, last September/October, when the writing was clearly on the wall about this?
The continuing "subprime" talk, without regard to the Option ARM Tidal Wave visible-on-the-horizon continues to amaze me.
Is this kosher with all the old laws about red lining?
If a lender says it will simply not write any loan in, say, Ohio, then as long as it doesn't have deposit-taking branches in Ohio, and as long as it really doesn't write any loans there, it's probably OK.
If you still take deposits in Ohio, then you have "reinvestment areas" per CRA and you have to be willing to lend, under some terms, in those areas. The money flow cannot be "one way."
If you say you won't take any loan in OH, and then you make a couple of exceptions for well-connected rich white folks, you's screwed big time.
Basically, "redlining" was about the problem of refusing to make loans in neighborhoods that were associated with Certain Kinds of People.
Most of us think a "declining markets" policy is not "redlining" in that sense, because it is identifying an economic reality of that neighborhood, and applying the rule to everyone in it equally.
And "declining markets" policies do not, as far as I know, ever say "no loans in this area." They say "no maximum financing in this area until further notice." I fail to understand why some people think that's such a terrible thing for low-income borrowers. Low income people don't have much money to waste trying to catch a falling knife. Why is it "unfair" that it's now harder for them to gamble, or to be fleeced by some fast-talking broker?
In truth, almost every prime lender (and mortgage insurer) I know of had restrictions regarding certain areas, like Miami-Dade Florida, all throughout the boom. It's true. But nobody really "noticed" because there were enough Really Dumb Lenders making loans there.
Didn't Option ARM lenders stop having a market for these loans, say, last September/October, when the writing was clearly on the wall about this?
What writing on what wall? The writing that said it's all "contained" to subprime and that these OA borrowers with their great FICOs aren't at risk? That writing?
Part of this is the triumph of appearances over reality. In reality, OA production is down to a trickle. But no one wants to write the memo that says "No more." That is to acknowledge the problem in a stark way. Better to keep "sentiment" up by leaving that dog on the rate sheet, and just kind of tightening up back in the back room where the credit decision process isn't public.
This is why you have a flood of brokers whining about "how long it takes" to get loans approved and how "bitter" the underwriters are these days. What is happening to them is that they're sending in apps under a "legal" (an advertised) program, but the wholesaler is working very hard to find an excuse not to approve any of them.
Eventually, someone gets tired of this--it's an expensive way to do business, having your underwriters spend hours figuring out how to not close loans--and decides to take the plunge. But that has such a lousy effect on "sentiment" that, well, the cowards win out and the memo gets retracted.
I wonder if they would halt this program at Wachovia wholesale and keep it at vertice their other wholesale division.
If I'm not mistaken some former World Savings employees are running Wachovia's wholesale. I'd imagine there's a bit of a difference of opinion on the OA between them and the Wachovians
As a former World Savings shareholder and drinker of Herb and Marion's koolaid who spit out the Wachovia koolaid after a few sips I have to admit to feeling a certain degree of schadenfreude over Wachovia's recent travails.
Say what you will about OA's, but World was a very well run company and a great place to work. Wachovia's arrogant ineptitude epitomizes the dominant b-school quarter to quarter mentality. Herb and Marion took the long view which served World and shareholders very well through thick and thin.
They finally are starting to get public scrutiny and exposure of their dirty little secrets. Their hometown paper editorialized about their questionable lending practices: 404 Not Found
Since Charlotte is such a clubby "company town" it is remarkable that they would publicly be brought to task. Some have felt that this actually is a ploy by Wachovia to discredit themselves as a way to dump World's OA and Legacy employees altogether. I don't give them that much credit.
As it is they have stopped lending in SoCa. World's bread and butter. Cut back severely in LV and FL. LTV's have been scaled back across the board. Minimum qualifying credit scores raised - dramatic steps for a non-score driven Portfolio lender.
Just a matter of time before they pull the plug IMO.
racerx:
Most of the key higher ups were put out to pasture.
Its just a matter of time before they scale back wholesale completely. Already the reps are induced toward retail origination.
One thing Wachovia management told su over and over was that WB is not a market leader. They follow the trends then act. Whichever way the winds are blowing, Ken and co will follow. Smells like low tide. I think this things gonna lay a turd on 4/18 earnings
ac, they should retitle it the "Pick Me Off" loan instead of the "Pick a Payment."
Been through that one before, too. Try explaining to people what happens when you become known as the lender of last resort. They never listen.
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Which, then, skews Wachovia's view of the world. If all you get is the "last resort" stuff, you think that's a "typical" pool of loans and since you're only taking the top of the pile, you're doing OK. It doesn't occur to you that the pipeline is already so adversely-selected that you are taking the bottom of everyone else's pile.
April 3 (Bloomberg) -- Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years during the fourth quarter, another sign the U.S. economy is slowing, according to an American Bankers Association survey.
Payments at least 30 days past due increased across all eight categories of loans tracked, the Washington-based group said today in a statement. Late loans climbed 21 basis points to 2.65 percent of all accounts in a consumer-loan index created by the group.
``The main problem is no one can tell today how the market will develop in the future,'' said new CEO Michael Kemmer, who replaced Schmidt last month. The bank is unable to estimate how much more it will have to write down, he said.
it amazes me just how many small investors will ignore these stmts from insiders and still invest in these companies trying to pick a bottom. riskloves will get fleeced.
I've truly hated that Debbie "Pick A Payment" ad that Wachovia runs in CO.
Unless you had a prepayment penalty mortgage( and if you qualified only for that are you a good candidate for a pick a payment mortgage ? ) you've always been able to pick a payment - a HIGHER payment of course ! All this thing does is lets you pick a LOWER payment - is that really what they want encourage all over AGAIN ?
In that sense, I'm glad that the advocacy group called them on it - I thought the group's argument was more of a "this is illogical" type rather than a "let our guys also get screwed" type.
Paulson Calls for US-China Energy Cooperation, Lower Tariffs on Environmental Technology
BEIJING (AP) -- Treasury Secretary Henry Paulson called Thursday for closer U.S.-Chinese cooperation on energy conservation and for Beijing to cut import duties on environmental technology.
I'm glad to see that President Paulson is on top of this.
There must be other Herbs and Marions out there, wondering --as the banking industry falters and b.s.'s and gets a little case of the runs-- whether this might not be a good time for a mom and pop shop to get back in the game.
I can see depositors rushing to a bank that puts the trust back in 'bank and trust.' Looky, free motto - you can use it with impunity if you give me a really safe place to stow my cash!
"There was no way we could have seen this coming, BSC was a good example of unforseen market conditions" Bernanke
He's either a liar or he a moron. Lots of people saw this coming and were actively and thoughtfully exposing the repercussions well in advance. We are so truly screwed.
The "Pick-a-Pay" Option Arm is not just any product for Wachovia, it IS, or rather, WAS Golden West, which they acquired at the peak of the housing cycle. Saying that you won't make OA loans in a huge chunk of CA is like saying you're shutting down a good half of the Golden West business. Of course this makes sense, but wow, the Sanders (the couple who sold GW) must be smiling some big smiles. They rank right up there with Sam Zell as top-callers.
BTW, Wachovia books its OA loans on its balance sheet, which is why the securitization market was not important for them (for this product). Same for Downey Savings.
The fact that these loans are legal at all is an indictment of the regulatory system.
But that's your problem, there. These were never much of a default issue for the decade or two of their existence in which they were only marketed to the affluent. They only got poisonous when they moved into the "mass market."
Now you want to protect non-affluent borrowers by making the product "illegal"? How far down that road are we willing to go?
Reality check: all lending decisions are "paternalistic." Lenders always decide whether this particular deal is "good for you," as opposed to "good for someone else." The real insidiousness arises when we declare it "good for everyone, regardless."
It's an anaemic concept of "fair lending," it seems to me, when all products must meet the lowest common denominator to be "legal." And no, I don't particularly care about those poor rich folks not getting what they want out of life. At some point it isn't always a deadly slippery slope: you can distinguish between responsible lending and a kind of offensive paternalism that decides what's good for them poor people.
I just don't know any low-income people who are agitating for OAs to remain available to them. For starters, they'd have to really know what an OA is, and most people don't qualify there, at any income level. There was "demand" for this product only to the extent that people thought it was a fixed-rate loan at a very good rate. Which was, you know, a mistake.
Nor, I suspect, do most low-income people want to be endlessly "outbid" on houses in their home neighborhoods by speculators who can still get 100% financing. A rising tide lifts all boats, but then again a receding tide lowers them all, too.
"Option ARM" is what we've decided on as the "generic" for negative amortization ARMs with multiple payment choices. Even though "OA" is really a name used by only a couple of lenders. "Pick-A-Payment" is Wachovia's cute title (which has always made me want to pick a nose, but I am childish).
I do not actually remember who first came up with "Option ARM" as the name for this dog. I want to say WaMu, but that might not be right.
Try explaining to people what happens when you become known as the lender of last resort.
In the UK, where the rarity of individual risk pricing means that loans are easy to comparison shop, lenders are discovering what this means. This BBC report quotes a mortgage broker as follows:
[HSBC subsidiary First Direct has] been topping the best-buy tables for quite some time now. As a consequence, they have been clearly attracting a lot of interest from borrowers.... What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards. That leaves another lender exposed to being very competitive and they receive a deluge of new business.
But in fact First Direct is not choosing to put up prices; instead it's restricting loans to its own existing customers. Why has it chosen to do this? Perhaps it is worried about the performance of the ARMs it has on its books and which are due to reset soon, and wants to continue refinancing these borrowers to avoid them defaulting?
I can understand why consumers want the option ARM since it is used as an affordability product. The OA allowed more people to qualify and for higher loan amounts.
I don't fully understand the demand from the secondary market side. IBs payed a lot for these loans.
The big problem is that yesterdays OAs are todays OBs ("option to buy"). There's a bit of moral hazard built into that product that hasn't been fully realized yet.
" instead it's restricting loans to its own existing customers. Why has it chosen to do this?"
Traditionally in the UK getting a mortgage was a bit like getting married in a church. You had to show a willingness to save and be committed to what you are about to embark upon and if you passed that test you could then be considered adult enuf to join the other members.
So it is not really such a bad thing to want to reward existing customers.
BEIJING (AP) -- Treasury Secretary Henry Paulson called Thursday for closer U.S.-Chinese cooperation on energy conservation and for Beijing to cut import duties on environmental technology.
And Bush is sucking up to Russia (and presumably their oil production) now.
I harbor concerns that China and Russia are going to smell the fear and take advantage of it.
Our leadership is walking around foreign lands with their jugulars hanging out.
racerx writes:
"I can understand why consumers want the option ARM since it is used as an affordability product. The OA allowed more people to qualify and for higher loan amounts."
It may have been marketed as an affordability product. For most people, it was a way to go deeper and deeper in debt without noticing. That isn't really affordability.
off topic, but well worth it, I beleive. I am beyond livid.
Now I am certain our congress have lost their collective minds.
The stealth bailout in the works for homebuilders
First developing news: The Republicans in the Senate, evidently fearing voter backlash, have agreed to work with Democrats on a big housing bailout. From The New York Times: "With both parties in Congress voicing a new urgency to help millions of homeowners at risk of foreclosure, the Senate voted overwhelmingly on Tuesday to move forward with a package of housing legislation."
The L.A. Times: "The breakthrough came after lawmakers returned from a two-week spring recess during which the federal government stepped in to rescue investment bank Bear Stearns Cos. and the country's economic troubles dominated the presidential campaign."
Now part of the bailout you haven't heard much about: tax breaks for homebuilders. "Corporate homebuilders -- including those responsible for the mortgage and housing crisis -- would receive billions of dollars in tax breaks under a provision of the Foreclosure Prevention Act currently pending in Congress," the Laborers' International Union of North America argued in a news release today.
More from the union: "Under the bill's little publicized 'carry-back' provisions, builders would get billions in tax breaks. The carry-back provision would allow homebuilders to apply losses from 2006 and 2007 as far back as five years against taxes paid on profits."
Bloviation: When Congress is through with the omnibus foreclosure prevention legislation, it says here it will resemble the world's largest Christmas tree, with boxes of bailouts, goodies and giveaways for every Who down in Whoville and every interest group and corporate lobby remotely connected to the business of building, buying or financing houses. Don't be surprised if the homebuilders find two piles of goodies under the tree: carry-back provisions to reduce taxes, and new tax incentives to encourage buyers to purchase new homes.
The tipping point in this debate was when the Fed backed the bad assets of Bear Stearns. Whether that event is most accurately described as a bailout, a liquidation or a burial is irrelevant. It opened the floodgates. "If we can bail out Bear Stearns, we can certainly provide aid to... (fill in the blank)."
Our leaders have all gone mad. Our lobbyists have all gone to the bank to get more money for our leaders.
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Wachovia needs to have a Statue of Liberty out in front of it's offices, except holding a bag full of money instead of a torch.
what truly disgusts me is this constant talk about all this money that sits on the sidelines waiting to come back into the stock mkt. it truly is there. but where did it come from? from all the well healed investment bankers, hedge fund managers, comm. bankers, etc. who profited off the mortgage boom and are now waiting to redeploy their money to the next bubble.
how about asking them to return all that to pay for Bear or all these new fiscal bailout plans?
Ok ok - FNBT - a little klunky but works with the 'trust' motto.
also we can do a separate youth market push:
FNBT: F'N AWESOME!
I see an animated ad with you in some kind of ubernerd superhero ensemble, swooping over distressed depositors and thundering: "I'm from The Blogs and I'm here to help"
I'll stop now, but I second eecon, If you don't do it someone else will. Can I dooz marketing and PR? Can CR be your pop?
i've read that Dodd was involved in the bailout of BSC plans that weekend and approved it. sorry to hear that. we won't get any action out of these guys. we're screwed.
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Wachovia needs to have a Statue of Liberty out in front of it's offices, except holding a bag full of money instead of a torch.
ac | 04.03.08 - 10:04 am | #
I'm thinking a bag to drop your keys into would be more appropriate. Saves on postage.
the elites are counting on once again confusing and obfuscating the real issues here. will the avg American realize how they're being fleeced. i think this time they will according to surveys i've seen. revolution anyone?
CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout. at this point given the alternatives, i would say bring it on and see what happens. we'd work it out and things would be healthier minus a few IB's and banks.
I don't fully understand the demand from the secondary market side. IBs payed a lot for these loans.
well, it's easy to seduce investors with low LTVs and high FICO scores. plus, there was no historical data on the post-recast tail. most people probably just assumed the cute little piggy wouldn't moon them.
let me quote an IB research report from October 2007:
Delinquencies on option ARM loans continue to run at low levels on an absolute, and, especially, on a relative, basis. Performance to date is particularly strong in the context of ample subordination levels. We believe that the primary reason that early stage option ARM performance has held up so well is superior collateral quality.
"CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout"
Nooooooo, that was the Fed who justified their actions by saying Chaos would have ensued had they not taken action.
Now here is the IRONY:
In their zeal to justify their actions they will help cause the very thing they hoped to avoid, why?
Because if we were so close to a chaotic unwinding....who is going to stay long in this market? I mean, if there is even a whiff of a rumor of another unwinding about to occur, who is gonna stick around to see if the Fed can pull off another save?
Who wants to be long in a market that is so fragile.
My guess is that more and more people are lining up at the door. Just the smell of smoke (even if it's nothing) will cause the stampede.
They have created the condition for panic when none may be warranted.
what would a revolution in this apathetic country look like?
I don't know, but it will be televised and the masses can watch on their HELOC plasma TVs.
Look no further than the trend of the dollar as a measure of wealth. The dollar buys less & less in the way of necessities. The world is getting tired of our financial bs. There is no way wall street or the government can make us propserous.
We're still a competitive nation, but less so than ever. The trend is not our friend.
We've abandoned hard work and ingenuity for financial dreams. Wait until people try and CASH in their perceived wealth (stocks, real estate, etc.)
Also, woithout the stability provided by our military the dollar would be even lower.
Bacon Dreamz I know the lower DQs was seductive but so many of these loans were originated with significant layered risk and the potential for moral hazard. I just don't understand how investors lost sight of this.
i haven't really thought about the form but i think it would have to be financial related to hit home where it hurts. you're already seeing it as homeowners walk away from mortgages.
Tanta, I wonder if you are aware that the right-wing Wurlitzer blames the entire subprime mess on...drumroll...the Community Reinvestment Act?
The talking point is everywhere--talk radio, newspaper columns, TV, the blogs. All those poor banks were forced to make bad loans to those people because of the gummit. They didn't want to. Now, see what happens?
I really don't know what to say to that. It's like trying to correct someone's spelling, then realizing you have to teach them the alphabet.
While I am watching the Banking committee hearing on BSC bail-out -Bunning just raged "this is SOCIALISM"
While in the Senate there is at least an equal amount being handed out to bail-out building companies, Haven't seen squat about this being socialism or any criticism.
Just like 1/3 of the STIMULUS PACKAGE went to longer term and therefore useless depreciation gifting to industry.
WORLD SAVINGS/WACHOVIA PORTFOLIO'S ALL THEIR OA LOANS. Which is a HUGE distinction from those players that were funneling their product to the Street.
Speaking of piggy's, the World OA is the Kosher Hot Dog of the prepared variety meats world. CW and WAMU's OA's would be the souse meat.
Is all CRAP just World's was "better" crap.
I just don't understand how investors lost sight of this.
When the principal is going UP, it's easy to lose sight of the risk. Yeah it's risky but as the risk increases so does the principal. On a sheet full of numbers, people see the numbers instead of the potential zeroes.
Tanta, I wonder if you are aware that the right-wing Wurlitzer blames the entire subprime mess on...drumroll...the Community Reinvestment Act?
Yes, I am. I run into that a lot.
They don't mention how many banks really did close their deposit-taking branches in some areas, leaving the only lenders left the non-depository non-regulated non-sensical predators. That was how you got around CRA. And the ones who just couldn't get behind "socialism" (urp) did want to get around it.
Therefore we had a plague of people getting subprime and predatory loans, because those were the only choices in their area. Sometimes the depositories would buy those loans on the secondary market, i.e., after they had been "laundered" through one set of buyback reps.
I even knew of a bank in the early 00's ripping out some of its deposit-taking ATMs, leaving only the cash-dispensers. That was to get around having to report on CRA lending activity in the census tract in which that ATM had been located.
But the fright-wing can always be relied on to blame it on those colored folks one way or the other.
Average Joe, I think the Fed knew that they already had panic on their hands. They just had to choose between fast panic (by having Bear collapse and the panic crash and rippling counter-party failures that would bring) or slow panic (where the Fed makes good Bear's commitments and people start shuffling towards the exits as quickly and inconspicuously as possible as they wake up and smell the reality).
I never noticed; my broker buddies never noticed. What type of restrictions were there supposed to be?
Interesting to find this out, since nobody is making any loans to anybody in Miami-Dade, as far as I can see.
Well, that's the thing. There were always lenders (and mortgage insurers) who weren't "visible" in Miami-Dade. But there were enough idiots that you didn't notice the limited range of lenders.
Now the dumb money is gone, and the smart money wasn't ever really there, so nobody's there.
Lenders and insurers have had "soft market rules" or "weak market rules" and "declining market rules" since Jesus was on the swim team. As I pointed out when first these "no maximum financing in a declining market" memos started coming out, that rule--the no max financing thing--had always been there. It was just that the list of "declining markets" changed.
" instead it's restricting loans to its own existing customers. Why has it chosen to do this?"
Because if you are going to take a risk--with uncertain returns--you take it on "your own," not "someone else's."
Why would Wachovia want to risk losing money on a loan for a borrower whose checking account is with Wells Fargo? That's like, okey dokey, you take the deposits and I'll take the loans. Then I won't have anything to fund my loans with, and you'll have this big cash pile you can use to snap me up when I get into trouble.
Just don't complain if this thread gets derailed, if you start with the political flame-baiting.
Point taken. (Anyone have any Visine?)
I try to avoid "right-wing." People can be on the conservative side of the world if they really really must.
Fearmongers, however, tend to piss me off.
Nonetheless, if this is going to start some thread where we theorize that Alphonso Jackson is a problem just because he's black, I will have learned my lesson.
"Possibly this is more of the kind of thing that makes me want to smack a lot of "advocacy" groups: a definition of "equal access" that means we'll fight for our constituency's right to get fleeced along with everyone else."
Hmmm! I'm not sure this should be taken at face value, since there could be another interpretation to the California Reinvestment Coalition statement: Try to corner Wachovia to publicly admit Option ARMs are truly not the kind of mortgage that should be /have been promoted as they've done thus far.
There's a potential to gain some, err, I could I put it politely, "political capital" an advocacy group could derive from a situation like this one.
Francois, that was what I was trying to imply in the paragraph immediately above the one you quoted.
Nonetheless, there is something a bit double-edged about that argument in this context.
Since, of course, Wachovia didn't write and then back off a memo saying "No OAs." It was a memo saying "No OAs in markets that are declining fast."
You have to interpret the CRC's claim as "low income people buying in declining markets are being discriminated against, because they can't afford to make down payments or carry amortizing payments. Only wealthier people can afford to make up for what the lender is saying is nasty value risk on the property."
That's an odd thing to say.
If your only goal is to corner Wachovia over OAs, well then. But Wachovia is just about the last lender out the door in these counties. The GSEs have "no max in declining market" policies in place already for fixed-rate loans. Wachovia was, as far as I know, never in San Bernardino in the first place in order to bring "affordable housing" to low-income people. If they're saying that they were, then you show how OAs were never affordable. You don't just complain because a low-income borrower in SB is as "cut off" from this type of financing as a high-income person is.
Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims. When asked about the suit, bank executives said they had been unaware of the thefts.
But newly released documents from that lawsuit now show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.
Internal Wachovia e-mail, for example, show that high-ranking employees at the nations fourth-largest bank frequently warned colleagues about telemarketing frauds routed through its accounts.
Documents also show that Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to multiple companies that helped steal as much as $400 million from unsuspecting victims.
YIKES!!!! wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. DOUBLE YIKES!!!! she added. There is more, but nothing more that I want to put into a note."
"CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout."
Bernanke said the same thing yesterday in his testimony to Congress. Did anyone asked him for the particulars of this prediction? (just a rhetorical question, of course)
Which begs the question (and its answer too) Why?
Because it is fair to assume that important members (oops! I was about to write "Comrades") of the Komintern (Darn! What's wrong with me today? The correct word is "Committee"...right?) were briefed in advance, hence they decided not to go too deep into this sorry matter.
Shnaps, i once sent Tanta a picture of what i think she looks like (nothing like your picture). she never responded, probably because she was spooked by how accurate it was.
New wrinkle - the ads I saw were for different payment options on fixed rate loans.
umm, I doubt it. Are you sure they didn't say "fixed TERM" - I've seen that one used a lot by brokers in the past.
That reminds me, I got an advert in the mail from ING yesterday - touting the fact that their mortgages "could save me thousands" coz they fix their rates for just five years, unlike the 30 years that "those other guys" use.
BTW, Wachovia books its OA loans on its balance sheet, which is why the securitization market was not important for them (for this product). Same for Downey Savings.
David Pearson | 04.03.08 - 9:35 am
And since the geniuses who make accounting rules count neg am as an increase in lender assets, it actually makes their balance sheets look better. No wonder they still do these.
A little OT-
Why does WaMu allow us to re-lock our initial 5 year rate on our 30 ARM? I mean, we're committed to pay the higher rate for the first 5 years, but we're able to reduce the rate and break even in about 3 months. What's in it for them?
sdtfs, does your note say something like this? i don't really understand what you mean either.
I have a Conversion Option that I can exercise unless I am in default or this Section 5(A) will not permit me to do so. The Conversion Option is my option to convert the interest rate I am required to pay by this Note from an initial fixed rate with one change to the new fixed rate calculated under Section 5(B) below.
The conversion can only take place on a date(s) specified by the Note Holder during the period beginning on the due date of the ___________ monthly payment and ending on the due date of the ___________ monthly payment. Each date on which my initial fixed interest rate can convert to the new fixed rate is called the Conversion Date.
We're going down from above 7 percent to below seven percent for the first 5 years. The cost to us is about $600 and we'll break even in about 3 months and save money through the rest of the five year initial lock. Yeah, I'm not a signatory on this loan, so I'm taking my partner's word on this loan, guess I better look at the docs.
This property cash flows really nicely, so I didn't really worry about the re-fi. We got it at a huge discount from a guy who didn't want to be a landlord any more, he carried the loan at 8% IO, we re-fied out to drop the monthly nut, (we ended up allowing him to move his loan onto a different property for his tax reasons [and he accepted a lower interest rate]).
But the larger question is why would WaMu accept a lower interest rate than they have to? We're committed to that first rate and none of the other terms are changing.
Ah well, we've been doing so many deals in the last three years I can't keep them straight. Hmmm, do you need a place to stay on Oahu? Those 1031 exchanges lead to some strange results.
Ahhh, I just talked to my partner again. We had a Pay Option ARM, and the rate reduction modified us into a straight IO ARM, no negative amortization allowed. It becomes clearer.
I know that no reasonable person takes the WSJ editorial page seriously, but this is just begging for one of your ripostes:
"Those receiving bailouts will be lenders who chased high returns despite the risks, and borrowers challenging historic rates of delinquency even before rate resets. Many will also be fraudsters, given that mortgage fraud has increased more than 1,200% since 2000.
"A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines.
"Homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. "Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages," says the Boston Fed study. In other words, even if the government moves these borrowers into FHA-guaranteed mortgages with fixed rates, but home prices keep falling, lots of borrowers will stiff the taxpayers like they've been stiffing private lenders."
Versed?
It's too early to rhyme.
Another example of fiat policy? Unofficial but de facto policy by memo?
And in denial of Americans' Rights to loans they can't afford?
Wachovia must be with the terrists.
Typical "Walk-over-yah." My experiences with them have included annoying fees, greedy fund managers who steered me into their worthless, loaded Evergreen funds (with high expense ratios), and clueless "financial advisors" who could never accept the notion that ANYTHING could every go down. Everything is a great investment - especially if bought through them - and everything only goes up! So, quickly buy something today even if you can't afford it. Right...
You know, I used to have to write these memos. (I used to have to write all the memos. If there was a memo to be written, someone would suddenly remember to fill my candy dish.)
After a while, you do learn. This is how it goes:
"Tanta, we want you to write a memo saying we aren't going to do this anymore. Period. It's over."
"Really? Really? If I write this memo and send it to 500 people, and they call up in a hour having a hissy fit, you're going to tell them this is final?"
"Yes, we are. We have Decided."
"You sure? When the "we'll take our business elsewhere" crap comes in, you'll be willing to say yes, we know that, that's why we're writing this memo?"
"Yep."
"OK. Here's your memo. Oh, and here's your retraction memo. You'll want to save that to your hard drive."
"But we aren't going to retract this!"
"Omsrhiparyyyygppt. Sorry. Looks like someone left caramels."
Actually, the spelling is "signaling". Sorry, I'm ornery this morning. More caffeine!
v. sig·naled or sig·nalled, sig·nal·ing or sig·nal·ling, sig·nals
v.tr.
1. To make a signal to: I signaled the driver to proceed.
2. To relate or make known by signals: They have signaled their willingness to negotiate.
v.intr.
To make a signal or signals.
signalling - definition of signalling by the Free Online Dictionary, Thesaurus and Encyclopedia.
I was raised in the double-final-consonant school, wherein we focussed on signalling lest we be labelled as bad spellers.
Most of you surely will have noticed that most spell-checkers let either choice get by them?
I also read about mortgage cos not writing mortgages in certain hard hit areas like MN and OH.
Is this kosher with all the old laws about red lining?
Tanta, why has it taken this long? The statistics show that something like greater-than-70% of Option ARM loan borrowers are making the 'minimum payment', so their loan balance is increasing.
Didn't Option ARM lenders stop having a market for these loans, say, last September/October, when the writing was clearly on the wall about this?
The continuing "subprime" talk, without regard to the Option ARM Tidal Wave visible-on-the-horizon continues to amaze me.
Jobless claims at 407000
Is this kosher with all the old laws about red lining?
If a lender says it will simply not write any loan in, say, Ohio, then as long as it doesn't have deposit-taking branches in Ohio, and as long as it really doesn't write any loans there, it's probably OK.
If you still take deposits in Ohio, then you have "reinvestment areas" per CRA and you have to be willing to lend, under some terms, in those areas. The money flow cannot be "one way."
If you say you won't take any loan in OH, and then you make a couple of exceptions for well-connected rich white folks, you's screwed big time.
Basically, "redlining" was about the problem of refusing to make loans in neighborhoods that were associated with Certain Kinds of People.
Most of us think a "declining markets" policy is not "redlining" in that sense, because it is identifying an economic reality of that neighborhood, and applying the rule to everyone in it equally.
And "declining markets" policies do not, as far as I know, ever say "no loans in this area." They say "no maximum financing in this area until further notice." I fail to understand why some people think that's such a terrible thing for low-income borrowers. Low income people don't have much money to waste trying to catch a falling knife. Why is it "unfair" that it's now harder for them to gamble, or to be fleeced by some fast-talking broker?
In truth, almost every prime lender (and mortgage insurer) I know of had restrictions regarding certain areas, like Miami-Dade Florida, all throughout the boom. It's true. But nobody really "noticed" because there were enough Really Dumb Lenders making loans there.
Tanta, your memo dialog is a reassuring reminder that bureaucratic stupidity is not a government monopoly like the USPS.
Wow, Outsider! Calling out Tanta's spelling without verfying it first? Really??? Have your READ this blog before?
Didn't Option ARM lenders stop having a market for these loans, say, last September/October, when the writing was clearly on the wall about this?
What writing on what wall? The writing that said it's all "contained" to subprime and that these OA borrowers with their great FICOs aren't at risk? That writing?
Part of this is the triumph of appearances over reality. In reality, OA production is down to a trickle. But no one wants to write the memo that says "No more." That is to acknowledge the problem in a stark way. Better to keep "sentiment" up by leaving that dog on the rate sheet, and just kind of tightening up back in the back room where the credit decision process isn't public.
This is why you have a flood of brokers whining about "how long it takes" to get loans approved and how "bitter" the underwriters are these days. What is happening to them is that they're sending in apps under a "legal" (an advertised) program, but the wholesaler is working very hard to find an excuse not to approve any of them.
Eventually, someone gets tired of this--it's an expensive way to do business, having your underwriters spend hours figuring out how to not close loans--and decides to take the plunge. But that has such a lousy effect on "sentiment" that, well, the cowards win out and the memo gets retracted.
Ha! Just after I read this I saw an ad on CNBC for Wachovia "Pick-a-Payment" mortgages.
Tanta :
"kind of tightening up back in the back room where the credit decision process isn't public."
Thanks, makes sense to me.
I wonder if they would halt this program at Wachovia wholesale and keep it at vertice their other wholesale division.
If I'm not mistaken some former World Savings employees are running Wachovia's wholesale. I'd imagine there's a bit of a difference of opinion on the OA between them and the Wachovians
As a former World Savings shareholder and drinker of Herb and Marion's koolaid who spit out the Wachovia koolaid after a few sips I have to admit to feeling a certain degree of schadenfreude over Wachovia's recent travails.
Say what you will about OA's, but World was a very well run company and a great place to work. Wachovia's arrogant ineptitude epitomizes the dominant b-school quarter to quarter mentality. Herb and Marion took the long view which served World and shareholders very well through thick and thin.
They finally are starting to get public scrutiny and exposure of their dirty little secrets. Their hometown paper editorialized about their questionable lending practices:
404 Not Found
Since Charlotte is such a clubby "company town" it is remarkable that they would publicly be brought to task. Some have felt that this actually is a ploy by Wachovia to discredit themselves as a way to dump World's OA and Legacy employees altogether. I don't give them that much credit.
As it is they have stopped lending in SoCa. World's bread and butter. Cut back severely in LV and FL. LTV's have been scaled back across the board. Minimum qualifying credit scores raised - dramatic steps for a non-score driven Portfolio lender.
Just a matter of time before they pull the plug IMO.
Ongoing discussion here by employees given the shaft by Wachovia:
Wachovia Jobs Forum - Wachovia Layoff | Indeed.com
Oh and they are the subject of several class action suits for playing games and not paying employees.
racerx:
Most of the key higher ups were put out to pasture.
Its just a matter of time before they scale back wholesale completely. Already the reps are induced toward retail origination.
One thing Wachovia management told su over and over was that WB is not a market leader. They follow the trends then act. Whichever way the winds are blowing, Ken and co will follow. Smells like low tide. I think this things gonna lay a turd on 4/18 earnings
I'd say, brokers, go for Wachovia with those marginal applications. They appear willing to cave in at the slightest touch.
Yes!!! This is exactly what they should get for walking around with their jugular exposed.
Money-Market Rates Rise as Banks Keep Hoarding Cash (Update1) - Bloomberg.com
who cares if banks won't lend to each other. time to buy their stock!!
Tanta-when's the newsletter ready?
ac, they should retitle it the "Pick Me Off" loan instead of the "Pick a Payment."
Been through that one before, too. Try explaining to people what happens when you become known as the lender of last resort. They never listen.
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Which, then, skews Wachovia's view of the world. If all you get is the "last resort" stuff, you think that's a "typical" pool of loans and since you're only taking the top of the pile, you're doing OK. It doesn't occur to you that the pipeline is already so adversely-selected that you are taking the bottom of everyone else's pile.
OT and yet topical (playing with fire on one of Tanta's posts):
Late Payments on Consumer Loans Highest Since 1992, ABA Says
By Hugh Son
April 3 (Bloomberg) -- Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years during the fourth quarter, another sign the U.S. economy is slowing, according to an American Bankers Association survey.
Payments at least 30 days past due increased across all eight categories of loans tracked, the Washington-based group said today in a statement. Late loans climbed 21 basis points to 2.65 percent of all accounts in a consumer-loan index created by the group.
[snip]
Wachovia called it "Pick-A-Payment," but its more like "Pick-A-Poison".
BayernLB Reports Record EU4.3 Billion in Writedowns (Update2) - Bloomberg.com
``The main problem is no one can tell today how the market will develop in the future,'' said new CEO Michael Kemmer, who replaced Schmidt last month. The bank is unable to estimate how much more it will have to write down, he said.
it amazes me just how many small investors will ignore these stmts from insiders and still invest in these companies trying to pick a bottom. riskloves will get fleeced.
Protecting borrowers via red-lining. I love it.
The fact that these loans are legal at all is an indictment of the regulatory system.
I've truly hated that Debbie "Pick A Payment" ad that Wachovia runs in CO.
Unless you had a prepayment penalty mortgage( and if you qualified only for that are you a good candidate for a pick a payment mortgage ? ) you've always been able to pick a payment - a HIGHER payment of course ! All this thing does is lets you pick a LOWER payment - is that really what they want encourage all over AGAIN ?
In that sense, I'm glad that the advocacy group called them on it - I thought the group's argument was more of a "this is illogical" type rather than a "let our guys also get screwed" type.
-K
Paulson Calls for US-China Energy Cooperation, Lower Tariffs on Environmental Technology
BEIJING (AP) -- Treasury Secretary Henry Paulson called Thursday for closer U.S.-Chinese cooperation on energy conservation and for Beijing to cut import duties on environmental technology.
I'm glad to see that President Paulson is on top of this.
There must be other Herbs and Marions out there, wondering --as the banking industry falters and b.s.'s and gets a little case of the runs-- whether this might not be a good time for a mom and pop shop to get back in the game.
I can see depositors rushing to a bank that puts the trust back in 'bank and trust.' Looky, free motto - you can use it with impunity if you give me a really safe place to stow my cash!
wait, a name occurs to me: Tantabanc
Also, you should give Anonymous Bosch free checking, for having the best handle on the board
"There was no way we could have seen this coming, BSC was a good example of unforseen market conditions" Bernanke
He's either a liar or he a moron. Lots of people saw this coming and were actively and thoughtfully exposing the repercussions well in advance. We are so truly screwed.
The Wachovia memo is important.
The "Pick-a-Pay" Option Arm is not just any product for Wachovia, it IS, or rather, WAS Golden West, which they acquired at the peak of the housing cycle. Saying that you won't make OA loans in a huge chunk of CA is like saying you're shutting down a good half of the Golden West business. Of course this makes sense, but wow, the Sanders (the couple who sold GW) must be smiling some big smiles. They rank right up there with Sam Zell as top-callers.
BTW, Wachovia books its OA loans on its balance sheet, which is why the securitization market was not important for them (for this product). Same for Downey Savings.
Hey, Fed: Stop robbing my savings, readers say - MarketWatch
News flash: Angry Savers Go Forth and Multiply!
The fact that these loans are legal at all is an indictment of the regulatory system.
But that's your problem, there. These were never much of a default issue for the decade or two of their existence in which they were only marketed to the affluent. They only got poisonous when they moved into the "mass market."
Now you want to protect non-affluent borrowers by making the product "illegal"? How far down that road are we willing to go?
Reality check: all lending decisions are "paternalistic." Lenders always decide whether this particular deal is "good for you," as opposed to "good for someone else." The real insidiousness arises when we declare it "good for everyone, regardless."
It's an anaemic concept of "fair lending," it seems to me, when all products must meet the lowest common denominator to be "legal." And no, I don't particularly care about those poor rich folks not getting what they want out of life. At some point it isn't always a deadly slippery slope: you can distinguish between responsible lending and a kind of offensive paternalism that decides what's good for them poor people.
I just don't know any low-income people who are agitating for OAs to remain available to them. For starters, they'd have to really know what an OA is, and most people don't qualify there, at any income level. There was "demand" for this product only to the extent that people thought it was a fixed-rate loan at a very good rate. Which was, you know, a mistake.
Nor, I suspect, do most low-income people want to be endlessly "outbid" on houses in their home neighborhoods by speculators who can still get 100% financing. A rising tide lifts all boats, but then again a receding tide lowers them all, too.
I usually Google before exposing my ignorance. Didn't help this time.
What's an OA loan?
TY, Alo.
i can haz free cheching?
wait, a name occurs to me: Tantabanc
Sorry, but I have always hated that all-one-word-with-a-"c" thing.
It's First National Bank of Tanta, or it's nuthin'.
OA = Option ARM.
"Option ARM" is what we've decided on as the "generic" for negative amortization ARMs with multiple payment choices. Even though "OA" is really a name used by only a couple of lenders. "Pick-A-Payment" is Wachovia's cute title (which has always made me want to pick a nose, but I am childish).
I do not actually remember who first came up with "Option ARM" as the name for this dog. I want to say WaMu, but that might not be right.
Sign me up for FNBT please - I can haz toaster now?
Serious 'bout FNBT though - that could roar!
Try explaining to people what happens when you become known as the lender of last resort.
In the UK, where the rarity of individual risk pricing means that loans are easy to comparison shop, lenders are discovering what this means. This BBC report quotes a mortgage broker as follows:
[HSBC subsidiary First Direct has] been topping the best-buy tables for quite some time now. As a consequence, they have been clearly attracting a lot of interest from borrowers.... What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards. That leaves another lender exposed to being very competitive and they receive a deluge of new business.
But in fact First Direct is not choosing to put up prices; instead it's restricting loans to its own existing customers. Why has it chosen to do this? Perhaps it is worried about the performance of the ARMs it has on its books and which are due to reset soon, and wants to continue refinancing these borrowers to avoid them defaulting?
The pick a pay loan is a fine niche product when properly underwritten in a non bubble market...oh.
I can understand why consumers want the option ARM since it is used as an affordability product. The OA allowed more people to qualify and for higher loan amounts.
I don't fully understand the demand from the secondary market side. IBs payed a lot for these loans.
The big problem is that yesterdays OAs are todays OBs ("option to buy"). There's a bit of moral hazard built into that product that hasn't been fully realized yet.
Tanta wrote: It's First National Bank of Tanta, or it's nuthin'.
Bank naming is non negotiable. Sounds familiar, but appropriate this time.
What time does the deposit window open?
Tanta Generale?
I don't know about CA, but here in NYC every other ad on the BBC-A and CNN is for Wachovia option ARMS.
There were restrictions in Miami-Dade during the boom?
I never noticed; my broker buddies never noticed. What type of restrictions were there supposed to be?
Interesting to find this out, since nobody is making any loans to anybody in Miami-Dade, as far as I can see.
I have a well-off developer trying for a 417,000 loan. They are giving him a very hard time. We shall see.
Oops. Not enough coffee. A full night's sleep for a change. And schizobloggia.
George W. above was moi.
" instead it's restricting loans to its own existing customers. Why has it chosen to do this?"
Traditionally in the UK getting a mortgage was a bit like getting married in a church. You had to show a willingness to save and be committed to what you are about to embark upon and if you passed that test you could then be considered adult enuf to join the other members.
So it is not really such a bad thing to want to reward existing customers.
An old fashioned idea maybe but not so bad.
BEIJING (AP) -- Treasury Secretary Henry Paulson called Thursday for closer U.S.-Chinese cooperation on energy conservation and for Beijing to cut import duties on environmental technology.
And Bush is sucking up to Russia (and presumably their oil production) now.
I harbor concerns that China and Russia are going to smell the fear and take advantage of it.
Our leadership is walking around foreign lands with their jugulars hanging out.
racerx writes:
"I can understand why consumers want the option ARM since it is used as an affordability product. The OA allowed more people to qualify and for higher loan amounts."
It may have been marketed as an affordability product. For most people, it was a way to go deeper and deeper in debt without noticing. That isn't really affordability.
off topic, but well worth it, I beleive. I am beyond livid.
Now I am certain our congress have lost their collective minds.
The stealth bailout in the works for homebuilders
First developing news: The Republicans in the Senate, evidently fearing voter backlash, have agreed to work with Democrats on a big housing bailout. From The New York Times: "With both parties in Congress voicing a new urgency to help millions of homeowners at risk of foreclosure, the Senate voted overwhelmingly on Tuesday to move forward with a package of housing legislation."
The L.A. Times: "The breakthrough came after lawmakers returned from a two-week spring recess during which the federal government stepped in to rescue investment bank Bear Stearns Cos. and the country's economic troubles dominated the presidential campaign."
Now part of the bailout you haven't heard much about: tax breaks for homebuilders. "Corporate homebuilders -- including those responsible for the mortgage and housing crisis -- would receive billions of dollars in tax breaks under a provision of the Foreclosure Prevention Act currently pending in Congress," the Laborers' International Union of North America argued in a news release today.
More from the union: "Under the bill's little publicized 'carry-back' provisions, builders would get billions in tax breaks. The carry-back provision would allow homebuilders to apply losses from 2006 and 2007 as far back as five years against taxes paid on profits."
Bloviation: When Congress is through with the omnibus foreclosure prevention legislation, it says here it will resemble the world's largest Christmas tree, with boxes of bailouts, goodies and giveaways for every Who down in Whoville and every interest group and corporate lobby remotely connected to the business of building, buying or financing houses. Don't be surprised if the homebuilders find two piles of goodies under the tree: carry-back provisions to reduce taxes, and new tax incentives to encourage buyers to purchase new homes.
The tipping point in this debate was when the Fed backed the bad assets of Bear Stearns. Whether that event is most accurately described as a bailout, a liquidation or a burial is irrelevant. It opened the floodgates. "If we can bail out Bear Stearns, we can certainly provide aid to... (fill in the blank)."
Our leaders have all gone mad. Our lobbyists have all gone to the bank to get more money for our leaders.
Ty, Tanta.
I knew what option ARMs were. Just had a brain freeze doping out the acronym this AM.
Any reason for Wachovia pumping the daylights out of them right now? Other than just making money on the loan fees?
This is a related story (that FFDIC posted on Monday)
404 Not Found
Marilyn O'Connor is kind of how I picture Tanta. Or a cross between her and Tangina the clairvoyant in "Poltergeist".
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Wachovia needs to have a Statue of Liberty out in front of it's offices, except holding a bag full of money instead of a torch.
what truly disgusts me is this constant talk about all this money that sits on the sidelines waiting to come back into the stock mkt. it truly is there. but where did it come from? from all the well healed investment bankers, hedge fund managers, comm. bankers, etc. who profited off the mortgage boom and are now waiting to redeploy their money to the next bubble.
how about asking them to return all that to pay for Bear or all these new fiscal bailout plans?
I prefer to call them POAs "Payment Option ARMs".
I also hate the word focused spelt focussed.
Winner winner chicken dinner
Woman Accused Of Burning Home On Eve Of Foreclosure - Greenville News Story - WYFF Greenville
Woman Accused Of Burning Home On Eve Of Foreclosure
POSTED: 6:26 pm EDT April 2, 2008
UPDATED: 6:28 pm EDT April 2, 2008
EASLEY, S.C. -- An Upstate woman is accused of setting her house on fire the night before it was to be foreclosed.
Deputies said Andrea Leah Dalton Propes, 29, set fire to the home she shared with her husband and child.
Investigators arrested Propes on Tuesday.
Ok ok - FNBT - a little klunky but works with the 'trust' motto.
also we can do a separate youth market push:
FNBT: F'N AWESOME!
I see an animated ad with you in some kind of ubernerd superhero ensemble, swooping over distressed depositors and thundering: "I'm from The Blogs and I'm here to help"
I'll stop now, but I second eecon, If you don't do it someone else will. Can I dooz marketing and PR? Can CR be your pop?
i've read that Dodd was involved in the bailout of BSC plans that weekend and approved it. sorry to hear that. we won't get any action out of these guys. we're screwed.
You might as well send out a memo that says "Send me your poor wretched loans that everyone else is busy denying right now." Why go through the interim denials? Just send it to Wachovia in the first place.
Wachovia needs to have a Statue of Liberty out in front of it's offices, except holding a bag full of money instead of a torch.
ac | 04.03.08 - 10:04 am | #
I'm thinking a bag to drop your keys into would be more appropriate. Saves on postage.
the elites are counting on once again confusing and obfuscating the real issues here. will the avg American realize how they're being fleeced. i think this time they will according to surveys i've seen. revolution anyone?
CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout. at this point given the alternatives, i would say bring it on and see what happens. we'd work it out and things would be healthier minus a few IB's and banks.
idoc
what would a revolution in this apathetic country look like?
sam writes:
idoc
what would a revolution in this apathetic country look like?
Answer: coke zero
I don't fully understand the demand from the secondary market side. IBs payed a lot for these loans.
well, it's easy to seduce investors with low LTVs and high FICO scores. plus, there was no historical data on the post-recast tail. most people probably just assumed the cute little piggy wouldn't moon them.
let me quote an IB research report from October 2007:
Delinquencies on option ARM loans continue to run at low levels on an absolute, and, especially, on a relative, basis. Performance to date is particularly strong in the context of ample subordination levels. We believe that the primary reason that early stage option ARM performance has held up so well is superior collateral quality.
"CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout"
Nooooooo, that was the Fed who justified their actions by saying Chaos would have ensued had they not taken action.
Now here is the IRONY:
In their zeal to justify their actions they will help cause the very thing they hoped to avoid, why?
Because if we were so close to a chaotic unwinding....who is going to stay long in this market? I mean, if there is even a whiff of a rumor of another unwinding about to occur, who is gonna stick around to see if the Fed can pull off another save?
Who wants to be long in a market that is so fragile.
My guess is that more and more people are lining up at the door. Just the smell of smoke (even if it's nothing) will cause the stampede.
They have created the condition for panic when none may be warranted.
what would a revolution in this apathetic country look like?
I don't know, but it will be televised and the masses can watch on their HELOC plasma TVs.
idoc,
Look no further than the trend of the dollar as a measure of wealth. The dollar buys less & less in the way of necessities. The world is getting tired of our financial bs. There is no way wall street or the government can make us propserous.
We're still a competitive nation, but less so than ever. The trend is not our friend.
We've abandoned hard work and ingenuity for financial dreams. Wait until people try and CASH in their perceived wealth (stocks, real estate, etc.)
Also, woithout the stability provided by our military the dollar would be even lower.
Bacon Dreamz I know the lower DQs was seductive but so many of these loans were originated with significant layered risk and the potential for moral hazard. I just don't understand how investors lost sight of this.
sam
i haven't really thought about the form but i think it would have to be financial related to hit home where it hurts. you're already seeing it as homeowners walk away from mortgages.
tax related perhaps?
average joe,
thats exactly what i think as well.
Tanta, I wonder if you are aware that the right-wing Wurlitzer blames the entire subprime mess on...drumroll...the Community Reinvestment Act?
The talking point is everywhere--talk radio, newspaper columns, TV, the blogs. All those poor banks were forced to make bad loans to those people because of the gummit. They didn't want to. Now, see what happens?
I really don't know what to say to that. It's like trying to correct someone's spelling, then realizing you have to teach them the alphabet.
30BN bailouts contested and uncontested.
While I am watching the Banking committee hearing on BSC bail-out -Bunning just raged "this is SOCIALISM"
While in the Senate there is at least an equal amount being handed out to bail-out building companies, Haven't seen squat about this being socialism or any criticism.
Just like 1/3 of the STIMULUS PACKAGE went to longer term and therefore useless depreciation gifting to industry.
WORLD SAVINGS/WACHOVIA PORTFOLIO'S ALL THEIR OA LOANS. Which is a HUGE distinction from those players that were funneling their product to the Street.
Speaking of piggy's, the World OA is the Kosher Hot Dog of the prepared variety meats world. CW and WAMU's OA's would be the souse meat.
Is all CRAP just World's was "better" crap.
I just don't understand how investors lost sight of this.
When the principal is going UP, it's easy to lose sight of the risk. Yeah it's risky but as the risk increases so does the principal. On a sheet full of numbers, people see the numbers instead of the potential zeroes.
Tanta, I wonder if you are aware that the right-wing Wurlitzer blames the entire subprime mess on...drumroll...the Community Reinvestment Act?
Yes, I am. I run into that a lot.
They don't mention how many banks really did close their deposit-taking branches in some areas, leaving the only lenders left the non-depository non-regulated non-sensical predators. That was how you got around CRA. And the ones who just couldn't get behind "socialism" (urp) did want to get around it.
Therefore we had a plague of people getting subprime and predatory loans, because those were the only choices in their area. Sometimes the depositories would buy those loans on the secondary market, i.e., after they had been "laundered" through one set of buyback reps.
I even knew of a bank in the early 00's ripping out some of its deposit-taking ATMs, leaving only the cash-dispensers. That was to get around having to report on CRA lending activity in the census tract in which that ATM had been located.
But the fright-wing can always be relied on to blame it on those colored folks one way or the other.
Average Joe, I think the Fed knew that they already had panic on their hands. They just had to choose between fast panic (by having Bear collapse and the panic crash and rippling counter-party failures that would bring) or slow panic (where the Fed makes good Bear's commitments and people start shuffling towards the exits as quickly and inconspicuously as possible as they wake up and smell the reality).
We believe that the primary reason that early stage option ARM performance has held up so well is superior collateral quality.
Got it in one!
Risk-layering doesn't matter in the slightest if the countertops are granite enough.
I never noticed; my broker buddies never noticed. What type of restrictions were there supposed to be?
Interesting to find this out, since nobody is making any loans to anybody in Miami-Dade, as far as I can see.
Well, that's the thing. There were always lenders (and mortgage insurers) who weren't "visible" in Miami-Dade. But there were enough idiots that you didn't notice the limited range of lenders.
Now the dumb money is gone, and the smart money wasn't ever really there, so nobody's there.
Lenders and insurers have had "soft market rules" or "weak market rules" and "declining market rules" since Jesus was on the swim team. As I pointed out when first these "no maximum financing in a declining market" memos started coming out, that rule--the no max financing thing--had always been there. It was just that the list of "declining markets" changed.
Risk-layering doesn't matter in the slightest if the countertops are granite enough.
Wow, those EDI tapes had more info on them than I thought.
But the fright-wing can always be relied on to blame it on those colored folks one way or the other.
Just don't complain if this thread gets derailed, if you start with the political flame-baiting.
since Jesus was on the swim team
i always thought that was unfair. i mean, how was anybody else supposed to have a chance in the 100m freestyle when Jesus could just run?
" instead it's restricting loans to its own existing customers. Why has it chosen to do this?"
Because if you are going to take a risk--with uncertain returns--you take it on "your own," not "someone else's."
Why would Wachovia want to risk losing money on a loan for a borrower whose checking account is with Wells Fargo? That's like, okey dokey, you take the deposits and I'll take the loans. Then I won't have anything to fund my loans with, and you'll have this big cash pile you can use to snap me up when I get into trouble.
Just don't complain if this thread gets derailed, if you start with the political flame-baiting.
Point taken. (Anyone have any Visine?)
I try to avoid "right-wing." People can be on the conservative side of the world if they really really must.
Fearmongers, however, tend to piss me off.
Nonetheless, if this is going to start some thread where we theorize that Alphonso Jackson is a problem just because he's black, I will have learned my lesson.
Tanta wrote:
"Possibly this is more of the kind of thing that makes me want to smack a lot of "advocacy" groups: a definition of "equal access" that means we'll fight for our constituency's right to get fleeced along with everyone else."
Hmmm! I'm not sure this should be taken at face value, since there could be another interpretation to the California Reinvestment Coalition statement: Try to corner Wachovia to publicly admit Option ARMs are truly not the kind of mortgage that should be /have been promoted as they've done thus far.
There's a potential to gain some, err, I could I put it politely, "political capital" an advocacy group could derive from a situation like this one.
Marilyn O'Connor is kind of how I picture Tanta.
Boy are you going to be surprised someday when my obituary picture turns up in the paper.
Francois, that was what I was trying to imply in the paragraph immediately above the one you quoted.
Nonetheless, there is something a bit double-edged about that argument in this context.
Since, of course, Wachovia didn't write and then back off a memo saying "No OAs." It was a memo saying "No OAs in markets that are declining fast."
You have to interpret the CRC's claim as "low income people buying in declining markets are being discriminated against, because they can't afford to make down payments or carry amortizing payments. Only wealthier people can afford to make up for what the lender is saying is nasty value risk on the property."
That's an odd thing to say.
If your only goal is to corner Wachovia over OAs, well then. But Wachovia is just about the last lender out the door in these counties. The GSEs have "no max in declining market" policies in place already for fixed-rate loans. Wachovia was, as far as I know, never in San Bernardino in the first place in order to bring "affordable housing" to low-income people. If they're saying that they were, then you show how OAs were never affordable. You don't just complain because a low-income borrower in SB is as "cut off" from this type of financing as a high-income person is.
"Boy are you going to be surprised someday when my obituary picture turns up in the paper."
I certainly hope that day will be far in the future Tanta.
Wachovia...You mean these guys?
Papers Show Wachovia Knew of Thefts - New York Times
(Original URL)
Papers Show Wachovia Knew of Thefts - NY Times
"Papers Show Wachovia Knew of Thefts
By CHARLES DUHIGG
Published: February 6, 2008
Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims. When asked about the suit, bank executives said they had been unaware of the thefts.
But newly released documents from that lawsuit now show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.
Internal Wachovia e-mail, for example, show that high-ranking employees at the nations fourth-largest bank frequently warned colleagues about telemarketing frauds routed through its accounts.
Documents also show that Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to multiple companies that helped steal as much as $400 million from unsuspecting victims.
YIKES!!!! wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. DOUBLE YIKES!!!! she added. There is more, but nothing more that I want to put into a note."
"CNBC constantly out with fear mongering about how the financial system would've imploded w/o the bailout."
Bernanke said the same thing yesterday in his testimony to Congress. Did anyone asked him for the particulars of this prediction? (just a rhetorical question, of course)
Which begs the question (and its answer too) Why?
Because it is fair to assume that important members (oops! I was about to write "Comrades") of the Komintern (Darn! What's wrong with me today? The correct word is "Committee"...right?) were briefed in advance, hence they decided not to go too deep into this sorry matter.
obit picture? Perish the thought!
I was just goading you anyway. I don't really think you resemble Ms. O'Connor; except maybe insofar as she has a kind of 'take no BS' look about her.
"Shnaps writes:
But the fright-wing can always be relied on to blame it on those colored folks one way or the other.
Just don't complain if this thread gets derailed, if you start with the political flame-baiting."
Tanta is merely stating a fact: Anyone has a problem with facts?
Apparently!
Boy are you going to be surprised someday when my obituary picture turns up in the paper.
No, we'll all be dead already.
Tanta,
Thank you for the clarification about Wachovia being the last lender in that area. That puts the whole thing into a different perspective.
We, the reality-based crowd, can't have it simple, can't we?
I don't really think you resemble Ms. O'Connor; except maybe insofar as she has a kind of 'take no BS' look about her.
But that, my dear, is the secret to Tanta's fearsomeness as a negotiator.
Most people tell me--after the meeting--that "Gee, you don't have that "take no BS" look. It comes as such a surprise when you open your mouth . . ."
The fact is I basically look like someone who could be willing to take prisoners. God has a really bizarre sense of humor.
Shnaps, i once sent Tanta a picture of what i think she looks like (nothing like your picture). she never responded, probably because she was spooked by how accurate it was.
I have a dimple in my left cheek, people. The kind that appears when I smile.
More than a few fledgling loan officer careers have crashed on that dimple.
Fitch:
Making Dollars and Sense of Loan Modifications
http://www.fitchratings.com/corporate/reports/report_frame.cfm?rpt_id=381162
FYI-Terry Gross on NPR's Fresh Air has Michael Greenberger on today to discuss the economy
Fresh Air from WHYY : NPR
I still have an image of Tanta as grey-eyed Athena (Minerva) maybe with a hint of blind Justice.
W.C. Varones writes:
Ha! Just after I read this I saw an ad on CNBC for Wachovia "Pick-a-Payment" mortgages.
New wrinkle - the ads I saw were for different payment options on fixed rate loans.
New wrinkle - the ads I saw were for different payment options on fixed rate loans.
umm, I doubt it. Are you sure they didn't say "fixed TERM" - I've seen that one used a lot by brokers in the past.
That reminds me, I got an advert in the mail from ING yesterday - touting the fact that their mortgages "could save me thousands" coz they fix their rates for just five years, unlike the 30 years that "those other guys" use.
BTW, Wachovia books its OA loans on its balance sheet, which is why the securitization market was not important for them (for this product). Same for Downey Savings.
David Pearson | 04.03.08 - 9:35 am
And since the geniuses who make accounting rules count neg am as an increase in lender assets, it actually makes their balance sheets look better. No wonder they still do these.
bobn, you may want to have a look at this excellent post from lama:
Calculated Risk: GuestNerds: The Pig and The Balance Sheet
A little OT-
Why does WaMu allow us to re-lock our initial 5 year rate on our 30 ARM? I mean, we're committed to pay the higher rate for the first 5 years, but we're able to reduce the rate and break even in about 3 months. What's in it for them?
umm, I doubt it. Are you sure they didn't say "fixed TERM" - I've seen that one used a lot by brokers in the past.
Maybe it said "fixed wagon." That would at least be true.
Why does WaMu allow us to re-lock our initial 5 year rate on our 30 ARM?
I don't really understand what you mean there.
sdtfs, does your note say something like this? i don't really understand what you mean either.
I have a Conversion Option that I can exercise unless I am in default or this Section 5(A) will not permit me to do so. The Conversion Option is my option to convert the interest rate I am required to pay by this Note from an initial fixed rate with one change to the new fixed rate calculated under Section 5(B) below.
The conversion can only take place on a date(s) specified by the Note Holder during the period beginning on the due date of the ___________ monthly payment and ending on the due date of the ___________ monthly payment. Each date on which my initial fixed interest rate can convert to the new fixed rate is called the Conversion Date.
We're going down from above 7 percent to below seven percent for the first 5 years. The cost to us is about $600 and we'll break even in about 3 months and save money through the rest of the five year initial lock. Yeah, I'm not a signatory on this loan, so I'm taking my partner's word on this loan, guess I better look at the docs.
This property cash flows really nicely, so I didn't really worry about the re-fi. We got it at a huge discount from a guy who didn't want to be a landlord any more, he carried the loan at 8% IO, we re-fied out to drop the monthly nut, (we ended up allowing him to move his loan onto a different property for his tax reasons [and he accepted a lower interest rate]).
But the larger question is why would WaMu accept a lower interest rate than they have to? We're committed to that first rate and none of the other terms are changing.
Ah well, we've been doing so many deals in the last three years I can't keep them straight. Hmmm, do you need a place to stay on Oahu? Those 1031 exchanges lead to some strange results.
Ahhh, I just talked to my partner again. We had a Pay Option ARM, and the rate reduction modified us into a straight IO ARM, no negative amortization allowed. It becomes clearer.
Tanta,
I know that no reasonable person takes the WSJ editorial page seriously, but this is just begging for one of your ripostes:
"Those receiving bailouts will be lenders who chased high returns despite the risks, and borrowers challenging historic rates of delinquency even before rate resets. Many will also be fraudsters, given that mortgage fraud has increased more than 1,200% since 2000.
"A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines.
"Homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. "Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages," says the Boston Fed study. In other words, even if the government moves these borrowers into FHA-guaranteed mortgages with fixed rates, but home prices keep falling, lots of borrowers will stiff the taxpayers like they've been stiffing private lenders."
Here's a link to the FRBB study mentioned in that WSJ article, by the way. It was published in Dec.
http://www.bos.frb.org/economic/wp/wp2007/wp0715.pdf
(I used to abstract those things. ehhhh).