patrick.net

I had a broker tell me it isn’t unreasonable to pay 50% of my net to housing.

Wow. Are you sure he didn't mean GROSS income, though? 28-33% of gross household income is considered to be the old-school/pre-paradigm benchmark. That would mean closer to 70-80% of NET income, depending upon tax bracket, location, etc.

F@cked Borrower having troubles making your new reset monthly payments? No probalo!

Just go furniture shopping at your local Home Depot!
http://www.cnn.com/2006/US/06/14/home.depot.drugs/index.html

Beef tenderloin can be had for $9/lbs at Costco… the meal of choice for the BJR.

Is that supposed to be a witty comeback? Nice try, but it doesn't even logically follow. Are you trying to say that BJR's can splurge at Costco for beef, but not pay $20/lb for filet mignon? Or are you saying that BJR's can afford meat at Costco, but since they don't have HELOC's to tap, they can't go out to a steak dinner? Try harder next time.

Most of the people at Wells are all very smart (Warren Buffett agrees with me and is a major shareholder), and my guess is that they will do fine and make plenty of money doing option ARMs.

Remember Wells does not care if the option ARM Borrowers ever repay the loans they just care if they can make money originating them and quickly selling the loand to bond buyers (who will buy almost anything).

I just got off the phone with some people still in NY at the CMSA convention (http://www.cmbs.org/) and as long as bond buyers continue to buy crappy loan Wells and other lenders will continue to originate them.

@FAB,

This has indeed been the prevailing paradigm for the past 5 years and running; however, I'm not so sure that this will always remain true in the years to come. If Wells had decided to get into the neg-am game 5 years ago, I'd agree, but now? Will bond buyers be so ready to gobble up these loans when foreclosures really begin to spike (as in 2007-2008, when something like $2 Trillion in loans reset)? If Wells ends up being forced to book a large % of these loans or take a loss in selling them (because investors demand more realistic risk premiums), the timing may not look so smart after all.

Scott,
My bad. Your post sounded a little trollish at first - I totally misread it.

BTW OMG rents are going up aarggggh! My lease is up and my landlord wants to raise my rents by 1.7%. I’m in Foster City in a SFH, 4br 3ba (for datapoint comparisons).

1.7%? Lucky to be outside of Google's orb of influence.

A friend of mine who works there thinks there are tons of people in the Bay Area ready to buy as soon as prices drop. I try to explain that her view of the world is quite skewed by virtue of where she works… somehow she doesn’t believe me. She’s a Bay Area native, and only remembers it going up.

She may not be completely wrong. A ton of people is only ten, if they are fat. If there are thirty people, we have "tons" in my book.

One should not be too concerned about the short-term price fluctuation of a primary residence anyway. There is nothing wrong with buying now. However, this is not a good time to stretch.

A friend of mine who works there thinks there are tons of people in the Bay Area ready to buy as soon as prices drop.

Big Chief Sitting Bubble has new indian name for your unfortunate young friend: Catches Falling Knife.

hmm sorry to go so far OT.

Yes, we should be talking about ceramic knives.

I just adopted a 2 year old cat. Boy! Is he stinky! Not in the cat spray kind of way…I think he has gas! Anyone here know about cats? Are they prone to gas???

Change his diet. Must be the diet. See if he wants fish.

NYTimes Guest editorial about foreign bucks:

http://tinyurl.com/lgjds

It seems like these FBs are almost *tricked* into buying these loans.

Yes, they tricked themselves into these toxic loans.

A ton of people is only ten, if they are fat.

Did not mean to laugh at fat people. I am one of them.

Anyone here know about cats? Are they prone to gas???

I have been a cat servant for approx. 12 years and thus consider myself a "cat expert". To the best of my knowledge cats do not have gas problems, boston terriers on the other hand are a completely different story.

What does he smell like? Farts?

Hmmm, odd very odd. Perhaps my cat is blaming it on the dogs also. I feed them Nutro Max and no observable gas. Perhaps he has a mouse lodged in his colon.

Perhape he’s just punishing us for not letting him outside.

Our cats are fine staying inside. I bet it is the diet. You never know what they used to feed him before.

LILLL put butter on his paws, he'll lick the butter off and any old scent. Good job on getting a PP cat (previsouly petted), and what is the gentlemans name?

Scott Says:

What, having trouble reading the intonation of Arial, 9pt?

Oh yes, that evil, evil Arial font.

10 fat people = 1 ton (2000#)? Heck, that's not even all that fat. The OR table we use for patients has a 350# limit. We not too rarely get patients that have to sign a waiver of liability to get operated on, in case they break the table due to their weight (over 350#). And I hear from colleagues it's even worse in the Midwest.

Apologies if I offend fat people or Midwesterners, or both...

Ramen can be had for $0.25 a pack at Costco - meal of choice for the FB.

Please, you will get sick eating that shit. I mean really sick. If you want those FB suckers to weed themselves out of the human gene pool, please prescribe gentler medicine. Compassion, man.

If you want those FB suckers to weed themselves out of the human gene pool, please prescribe gentler medicine. Compassion, man.

Fuck that, if ramen is FB green kryptonite, I say force feed them a case/day.

I repeat, fuck them.

And using the universal sign language,

The middle finger, followed by pointing that the FB, followed by two fingers up and finally a shaking fist.

Translation: Fuck you twice real hard.

-that
+at

I wrote that:

> Wells does not care if the option ARM Borrowers
> ever repay the loans they just care if they can make
> money originating them and quickly selling the
> loans to bond buyers (who will buy almost anything).

Then H.Z. Says:

> As I understand it securitizers typically take the first
> loss on MBS (and for conforming loans, agencies
> will insure against any loss), so WFC better care
> about loan loss ratio. However they can always
> structure it to make it profitable if they charge enough
> credit spread.

Banks and other loan Originators only take the first loss piece of a CMBS pool when they do safe loans. Fannie Mae DUS underwriters have a reputation for being tough since they loose money if the loan goes bad and Wells has a reputation for only doing safe loans.

I have no idea if the details of the new Wells program, but since I do know many people that work at Wells I would be wiling to bet that Wells will have almost no risk doing the risky loans. I don’t know of any CMBS lender that holds the first loss piece on risky loans.

surfer-x Says:

And using the universal sign language,

Translation: Fuck you twice real hard.

Mr. X, how many fucks is that?

I would have been shocked if I’d found out you’re a stringbean!

I was quite slim during my freshman year. I rode a bike and ate horrible dorm food.

Then I got a car which gave me access to restaurants...

Then a ten year boom...

Thirty percent is totally an arbitrary number Peter and you know it. As I have said before, if you make more, you can spend a larger portion of your total income on housing and still have a good standard of living.

To be honest, I am not really sure what else you would spend it on. Art? Travel? Entertainment?

There are only so many toys one can have.

As I have said before, if you make more, you can spend a larger portion of your total income on housing and still have a good standard of living.

I think those who make more should spend proportionally less on housing. How much is Bill Gate's house?

To be honest, I am not really sure what else you would spend it on. Art? Travel? Entertainment?

Sushi. Kobe beef. Travel can be expensive. ;)

There are only so many toys one can have.

Given enough money, you will be surprised how much one can spend. I read somewhere that it gets difficult to spend more than 200M though.

The latest being the tried and true 30% of gross going to shelter expenses.

I thought that number was 28%. But I guess stretching to 30% will not hurt too much.

Jimbo has been saying a whle lot of things that have no basis. The latest being the tried and true 30% of gross going to shelter expenses. Saying something doesn’t obviate CENTURIES of sound economic practice.

Oh, pshaw. I will be nice and not make too much fun of you for this Robert. Do you honestly believe that people have been following this little bit of "wisdom" for CENTURIES? Do you think the settlers, with their sod homes and subsistance farming, followed it? Do you think people worldwide follow it?

Seriously, it has got to be a mid to late 20th century invention. People have always paid whatever they had to, to survive, with food and clothing coming first and then shelter right behind.

Now that I think about it, I am kind of curious where it came from and how it came to become recieved wisdom.

Does anyone know for sure?

Sure Peter, if you make billions, you probably can't spend 30% of it on housing. And the poor probably spend the most, since even crappy housing costs half of your income if you are poor.

But you see my point, right? If you make 200k a year, you can spend half on housing and still have 100k to live off of, but if you make 100k a year, your standard of living is going to be lower than the guy making 2X your income, no matter how much you spend on housing.

All else being equal of course.

Isn't Wells Fargo a little late to the party? As someone who banks at Wells Fargo, I am not happy about this decision either. But as a practical matter, what difference will it make? How much subprime lending is there going to be in the next few years?

And there are limits even to subprime lending. I mean, an illegal alien might be able to get a $300,000 mortgage to buy a house in Compton, but they're not going to be able to get $1.3mm to buy a place in Malibu. Even in the subprime market, affordability is still an issue.

Next, the RE market has peaked (and is crashing in the rest of the country) despite the wide availability of subprime loans. Wells Fargo didn't offer them, but everyone else did -- Washington Mutual, New Century, Quicken, your local sleazy mortgage broker, etc., etc. I cannot see how Wells Fargo's decision to enter the market will change things in the least. There are already hundreds of subprime lenders, the fact that Wells Fargo has become lender #383 to enter the market should not make any real difference.

Also, I would wager that most of the fools willing to take out these loans already have them. There can't be a huge, untapped pool of borrowers out there, except maybe for financially naive people just graduating from college and a few would-be flippers who are late to the party. But most of your seriously irresponsible or greedy people are already in the game. They have been subjected to a barrage of marketing for the past four years; I doubt that there are many left for Wells Fargo to choose from.

Finally, fraud is driving a lot of the subprime market. If I were Wells Fargo, I might be willing to make I/O loans and payment-option ARM's, especially if I was going to sell them to someone else after I originated them. But I don't know that I'd be willing to accept a mortgage applicaiton from a Del Taco assistant manager which states an annual income of $150,000 per year. While banks have made plenty of stupid financial decisions in the past, major institutions like Wells Fargo really aren't crazy, and they really do have lending standards. And even if Wells Fargo was willing to roll the dice, they'd still have to face audits by the FDIC and Comptroller of the Currency. Wilful blindness to mortgage fraud might be acceptable for Joe's Mortage Shop, but I can't see Wells Fargo doing this.

Actually the linked article contains some hints about what Wells Fargo's true intentions may be:

"We see a huge opportunity for Wells Fargo to play in that segment in a a very fair and responsible way," Cara Heiden, a co-head of Wells Fargo Home Mortgage, told American Banker.

In other words, Wells is telegraphing the fact that they aren't going to participate in mortgage fraud.

"Last week the San Francisco bank (NYSE: WFC) introduced a "Steps to Success" package of education, tools and banking services to help borrowers with less-than-perfect credit to improve their finances

The move is likely to address criticism the bank has received from community activists about allegations of predatory lending. Wells CEO Dick Kovacevich has said on many occasions that the bank does not engage in predatory lending.

In other words, community activitists have accused Wells-Fargo of ALREADY making suicide loans (I/O, ARM) to minorities. The "education program" Wells Fargo is instituting is designed to insulate them from such charges in the future.

"The big question is how do you ensure you're originating the product for that consumer who can, in fact, manage the credit?" she said.

This is another pretty clear statement by Wells; they aren't going to give option ARM's to just anyone, they are a legitimate bank.

In addition to reaching out to immigrant and minority communities

More response to activist pressure.

the bank is also generating a "significant amount" of Home Mortgage Asset Management Accounts, which is a first mortgage that can be drawn and repaid like a line of credit. Heiden said the bank isn't marketing the account as a way to reduce interest costs by having a borrower's cash flow temporarily reduce the mortgage balance.

This is a relatively benign product. Although I personally would not be interested in it, it's not as bad as an option-ARM or IO loan.

driller Says:
you know what…I’m gonna go out and get some nasty ass loan and live it up in a mansion for 5 years and walk away when the whole thing blows up.

sounds like a guy who started a ponzi scheme of sorts between Oz, NZ and HK -- he convinced a pile of wealthy friends that he could make 20% a year for them investing in racing racehorses and other unspecified gambling ventures -- so they gave him their money in trust, and he bid for racehorses at auction, often paying way over sensible prices. but that was just a sign of his success, and showed he knew what he was doing. the other thing was, he told his investors that he could give them their 20% return each year, or just leave it with him and he would roll it over for them to the next year to reinvest, and so on, presumably amassing a compounding fortune for them. 3/4 of them decided to roll it over. so, naturally, he just lived the high life off the millions they gave him, and he paid the 20% return only to the 1/4 who had asked for it, also drawn down from the starting capital. when the whole thing fell apart, they looked at the few assets they had (racehorses), and probably managed to get 50% of what the guy had paid for them. the guy himself 'fell' from a 5th floor apartment in HK...

tastes good on my Captain Cook grill.

captain cook, hee hee. i'm sure lieutenant james cook of the british royal navy would be pleased to know what happened to his name ;) spinning in his shallow grave in hawaii...

Joe Schmoe,

Your take on WFC just about sums it it up. My first question was, why? How can this make sense at this stage of the game? The only thing that I question (and this from a pure marketing perspective) is that many top tier banks ALSO own "chop shops". It's early so I can't think of any off hand but it's not uncommon. So Joe and Jill come in, can't be financed by Wells and are then handed off to the chop shop. This way by advertising this "new" service at least Wells gets first crack to see if the qualify for conventional financing and if not sends them down the street to their "affiliate" and makes something on the referral or whatever. At banks it's often about "profit leaks" and I think they believe through this method they can drive a number of the lesser players out as well.

Jon Says:

> I went to Babson College for my undergrad and
> there were about 25% international students.
> There were very, very wealthy kids there from
> Europe, Asia, India, etc. It wasn’t uncommon for
> my little 1996 Neon to be parked between a M3
> and a Porche. M3s were so common on the campus,
> knowing little about luxury cars, I thought they
> were some sort of new economy class car line,
> like a toyota.

The first M3 had a 4cyl and the current one has a small 6cyl so compared to the V12 in Dad's 750iL and the V8 in Mom's 540i Sportwagon some families probably refer to the M3 as an "economy car" for the kids...

P.S. Porsche has an "s" in it. When pronouncing Porsche make sure to pronounce both syllables (this may come as a shock to many people) but it is not pronounced Porch (as in Grandma is sitting on the front Porch)...

most people say 'porsh' altho it's 'porsh-a' (not using IPA)

adidas is just 'addy das', named after founder adolf (adi) dassler...

it's interesting to hear how people pronounce 'hafele' outside of germany...