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Wells Fargo's COO: "we never get into the chain of ownership"
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2007 Feb 12, 6:51am 13,448 views 128 comments
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Terriers are known for being Houdini's and are master diggers (under fences), I wouldn't want to chase after them all the time, it's bad enough when our dog decides to jump the fence (6 foot) - he even uses the trash can to help him over!
Well, even if someone has good credit - if they have overextend themselves getting into their dream home, then they will (probably) kill themselves trying to make the payments and avoid loosing the house, but in the end, they still won't be able to help themselves.
By the way, our dog has been known to catch gophers and kill them (accidentally) and he is often out in the garage, but the rats tend to run round the rafters and have probably learnt how to avoid our dog.
palo alto renter - that description of loans they are not doing anymore, sounds like they won't have any custom now! Except maybe those that got an ARM 2 years ago and need to refinance.
Yep we are in CA, but in Mountain View, so we do not have as many rights as some other towns do.
Boston Transplant :
Thanks a MILLION for the link to Grants' article ! This was a very informative article. If anyone is willing to invest time - it requires a slow reading (at least for me, YMMV) - then it is very much worth reading.
And that article at Rich Toscano's site is good too.
palo alto renter,
Thanks for Rich Toscano's link. Well worth the read. His buddy Ramsey knows his stuff.
Ha Ha,
Partick is sounding........ confident these days! And not without good reason! There's a definite change in his tone from the first (WSJ?) article. One aspect that doesn't get near enough air time is that for someone that bought at the peak, they are only about 16 payments ahead of us. So only 344 payments to go! It's a marathon, not a sprint.
palo alto renter Says:
> I especially appreciate the visibility into how subprime
> might ripple throughout the rest of the market.
Since we are going to see more that subprime loans go bad we will soon see in increase in the “credit spreads†and “servicing spreads†on all loans. Even if “interest rates†stay the same it is going to cost a lot more for most people to re-fi.
When someone goes down to get a 6.25% conforming 30 year loan the “rate stack†is basically (leaving out a lot of tiny bps add ons to keep things simple):
4.83% “Risk Free Rate†aka the Yield on the 30yr Treasure
1.32% “Credit Spread†aka “Risk Premium
0.10% “Servicing Spread†aka “Servicing Stripâ€
6.25%
When defaults increase the returns need to increase to get any hedge fund/high risk guys to buy the higher risk below investment grade bonds and the servicers start demanding more since they are doing workouts and foreclosures so a year from now even if the 30 yr T stays the same it may cost another 1.00% to re-fin that neg am IO Voodo Loan (assuming your broker can pay an appraiser to “hit the valueâ€).
I know someone with a 4.5% $1mm IO condo loan that adjusts and starts to amortize in 2007. The jump from 4.5% IO to 7.25% 30yr am is just over $3K a month (about $37K a year). Since everyone in the Bay area does not make a couple HaHas things will get ugly (again increasing credit spreads and servicing spreads starting the “death spiral†that I personally watched in S. Cal from 1991-1994)…
FAB,
Thanks for the post. This thread has brought out a lot of good information on how mortgage financing works. I am waiting for the day when the mortgage rates start creeping up.
Given Ben's testimony today, is there any doubt that Fed is looking for just ONE excuse to start dropping the rates ? Since he said inflation pressures are easing only 2 days before CPI is announced, I would be shocked if CPI doesn't drop.
How would that play out ? The drop in risk free rates might just compensate the increase in the spreads. Will that be enough to avert the death spiral ?
I wonder who got Casey Serin's mortgages rolled into their MBS...
You mean "Mortgage Hot Potatoes"?
"Unless risk has been woefully underpriced, which it has"
What's with the bad attitude this early in the morning? Why do you hate defaulted loans and Amerika so much? Me likey! :)
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Over the past 18 months or so of regular posting here, I've taken a considerable amount of flack for my criticism of MBS/CDO debt instruments as being a primary cause of the current housing bubble --and why I believe this bubble is so much larger in magnitude and global scope than previous relatively localized bubbles. In particular, I've criticized mortgage-backed securities as being a bankster stealth vehicle, used primarily for transferring mortgage default risk from lenders to main street (retail investors, pensioners & taxpayers). Some of the big "L" Libertarians disagree with me on this.
Some of you might be familiar with my mantra (even if you disagree with it): "Privatize Profits, Socialize Risk".
Well, last Friday my point-of-view just received some direct confirmation from a rather unlikely source: Wells Fargo's President and COO, John Stumpf. You may recall that Wells Fargo is the nation's largest sub-prime lender (see the Mortgage Lender Implode-O-Meter for rankings).
Reuters: Mortgages are different story for Wells Fargo-COO
Here's an excerpt:
There you have it straight from the horse's mouth: MBSs exist primarily for risk-transference to protect the lenders --"it's just that simple".
Oh, and after they repackage and sell these loans to "Wall Street firms" (think Fidelity, Merrill Lynch, Goldman Sachs, etc.), do you think those firms personally keep them on the company's books or re-sell them downstream as fast as possible to retail sucke-- er, investors
(think 401k plans, pension funds, grandma, sister, etc.)? I think we can finally can close the book on this particular "debate" now ;-).[1] [2][1] In light of recent information from Mike, FAB, Randy, etc., I am reconsidering my postition. If most of the default/repurchase risk is concentrated in the lowest MBS tranches, and these tranches are basically off-limits to retail investors and pension funds, then the only people getting screwed are hedge funds and FCBs. If that's indeed the case, then more power to Mr. Stumpf & Co.
[2] Another poster (News) recently (2/22/07) pointed out that the Amaranth Hedge Fund blow-up last September cost the San Diego County employees' pension fund $87 million in losses. While this was related to natural gas trades --not MBS/CDO-- this example illustrates how my original contention about retail investors being exposed to HF/derivatives risk might turn out to be true. Isolated data point, or an early indication of an emerging trend? The next few years will tell the tale, as $Trillions in option-ARM and I/O mortgages start resetting.
Discuss, enjoy...
HARM
#housing