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Did Wells Fargo originate the most subprime mortgages?


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2007 Nov 28, 12:36am   22,473 views  157 comments

by Patrick   ➕follow (55)   💰tip   ignore  

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I read on ml-implode.com that Wells Fargo originated the most subprime mortgages, and this by a factor of two beyond the nearest competitor. I can't find the quote anymore. Is it true? And if so, how did Wells escape the general meltdown among lenders?

Other banks thought they had sold or otherwise pushed the risk of default onto investors in subprime mortgage-backed bonds, but somehow Wells seems to have done it more successfully. Or has the shit just not yet hit the fan at Wells?

Patrick

#housing

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1   Patrick   2007 Nov 28, 12:08am  

OK, a little shit has hit the fan:

http://news.yahoo.com/s/ap/20071128/ap_on_bi_ge/wells_fargo_charge

But a measly $1.4 billion is nothing compared to the amount of subprime that Wells originated. More to come?

2   Duke   2007 Nov 28, 2:27am  

Other then the as-yet-known size of their HELOC problem, isn't there some paper that has a reversion clause? I mean, Wells sells its securitzed laons then they perform at some level that triggers a repurchase clause?

My 2 cents is that Wells will show a massive problem some time next year.

3   EBGuy   2007 Nov 28, 3:18am  

This is from the press release on their website:
the Company will no longer originate home equity loans through wholesalers where the combined loan-to-value ratio of the first and second mortgages is 90% or higher, or where the second mortgage is not behind a Wells Fargo first mortgage.
I imagine the types of loans in their "liquidation portfolio" probably don't meet these characteristics. It is worth noting that I certainly would not want to be holding any sort of loan (especially subprime) that has a LTV of 90% or greater in California (would you?).... and that the LTV ratio would go down for areas like the Central Valley and Inland empire. I believe that the conservative nature of their HELOCs usually hinged on low LTV ratios. In a "normal" market (rising, or at the worst flat) this makes them bulletproof. In falling market, "conservative" may become risky. NIA. FYI, I am an unrepentant specuvestor and went short on Wells again this morning.

4   EBGuy   2007 Nov 28, 3:40am  

From the mouth of the CEO:
We're about the seventh-, eighth- or ninth-largest originator of subprime mortgages, so we are not the lead in that category....

We have full income verification and full appraisals.

We couldn't understand negative-amortization loans. You owe more than the mortgage you started with. It didn't make any sense for us to do stated-income and stated-asset loans for subprime customers.

5   DinOR   2007 Nov 28, 4:02am  

EBGuy,

Funny to note his response to loan work-outs was a securitization answer? "Oh "these things" get cut up and sliced up and diced up"

Translation?

I don't have a CLUE as to how this all took place!

6   sa   2007 Nov 28, 4:09am  

It's official. We have a Bernanke PUT!!!

7   NorthBayBroker   2007 Nov 28, 4:12am  

Wells Fargo was one on the largest originators of stated income 100% seconds. They will be in a world of hurt. Just wait.

8   sa   2007 Nov 28, 4:34am  

Interesting posts from one of the blogs:

WELLS IS TAKING A $1.4 BIL HIT ON THE $11.9 BIL THEY ARE SELLING, WHICH IS FAR TOO LITTLE of a hit. How can they possibly think they will get 87 cents on the dollar? They still have $70 billion in 2nds left. Even CFC said their Prime 2nd mortgaged were only worth 80 cents last earnings report. The market has gotten far worse since. Wells also says of the $70 Billion left, only $17 Billion are BELOW 90% meaning WELLS STILL HAS $53 BILLION IN RISKY 2NDS ON THE BOOKS. Add in the $52 Billion of straight subprime loans they report and $225 Billion of Interest Only Intermediate-term ARMs mostly in States like CA and it is a disaster.

Wells outproduced everyone in subprime, 2nds and stated income/stated asset interest only loans. They were always at the top. Wells will likely show the largest losses of anyone over time

9   DinOR   2007 Nov 28, 4:55am  

"one of the largest originators"

Well that's what I... thought! You know, in ways a lot of these CEO's are starting to sound just like their employees further on down the food chain.

Like I say, one of these days I'm going to run across a MB that says, "Yeah man, I was cutting a fat hog. I KNEW when this "self-unemployed" guy wanted to go stated he was coming up with numbers out his @$$ and would go belly up on the loan but I figured, hey I gotta' lifestyle to support you know!"

and then I'll keel over and have a heart attack!

10   DinOR   2007 Nov 28, 4:57am  

Again, someone remind me? If there are trillions of sub/Alt A/garbage loans out there why can't I fine ONE guy that says he was writing 'em?

Huh....?

11   Lost Cause   2007 Nov 28, 4:57am  

I have a bridge in Minneapolis to sell you.

12   SFWoman   2007 Nov 28, 5:21am  

http://www.responsiblelending.org/pdfs/ip004-Wells_Fargo-0404.pdf

I'm sure that these guys were thought of as kooks (like people who said that housing prices weren't sustainible) when they wrote this about Wells and subprimes in 2004.

13   NorthBayBroker   2007 Nov 28, 5:22am  

I think Wamu is going to be the next shoe to drop. They have a ton of option arms that are about to recast. I wonder if they will call that subprime too?

14   DinOR   2007 Nov 28, 5:46am  

SFWoman,

Oh... you know what a bunch of sissies those guys over at the CRL are!

Gee, that paints a little different picture than their CEO did now doesn't it? Once you've taken time to read it you'll realize these guys are the very description of predatory lenders! And this is in 2003! (You know, BEFORE things got really... crazy?)

15   FormerAptBroker   2007 Nov 28, 6:28am  

NorthBayBroker Says:

> I think Wamu is going to be the next shoe to drop. They
> have a ton of option arms that are about to recast.

WaMu will be in worse shape than Wells since the average WaMu Borrower has a lower income, credit score and IQ than the average Wells Borrower. Almost all Option ARM Borrowers pay the minimum payment most will reset well before the scheduled rate reset when they hit 105% or 110% and the “option” to pay less than the fully am payment goes away (maybe 2% of option ARM Borrowers know this). Wells was the lender of choice for many of my friends buying $2-$3mm homes with small down payments. Most of these people have incomes and high credit scores and would not be considered “subprime” Borrowers, but many will be in trouble when the 5% IO period on the $3mm loan ends and the monthly payment jumps from $12,500/mo to just under $20,000/mo at 7%/30yr/am….

16   EBGuy   2007 Nov 28, 7:36am  

Here is the breakdown of the Wells Fargo $83.4 billion National Home Equity Group portfolio that I got from the 8-K that Wells filed.

$83.4 billion WF National Home Equity Group portfolio =
$11.9 billion liquidating portfolio ($1 bil to go bad in 2008-2009) +
$70.2 billion WF retail +
$ 2.7 billion Other (not bad enough for liquidating, but mortgage brokers were involved)

$70.2 billion WF retail =
$11.5 billion retail first liens +
$58.7 billion retail second liens

$58.7 billion WF retail second liens =
$36.8 billion 2nd backed by a WF first mortgage (No CLTV specified, uh-oh?! Don't worry, we own the whole enchilada.) +
$21.9 billion 2nd (other bank on the first mortgage)

$21.9 billion WF retail 2nd (other bank on the first mortgage) =
$17.5 billon 2nds with less than 90% CLTV
$ 4.3 billon 2nds with greater than 90% CLTV (I bet some of these stinkers go bad. Geez, hope those appraisals were accurate!)

17   anonymous   2007 Nov 28, 7:39am  

WF is an awful bank, they treat everyone like shit. I thought it's because I'm white, but my wetback friend said he was treated like crap too. They just treat everyone equally - BADLY.

And they've loaned out money hand over fist too. To, well, poor credit risks.

18   DinOR   2007 Nov 28, 8:35am  

"but mortgage brokers were involved" LOL!

Yeah that does say a lot. Call them... "tainted assets".

I'll agree w/ FAB though, WaMu has the worst sort of clients/loans. This is the market they went AFTER! I'm also willing to bet their avg. mmkt/per client is MUCH lower too. That aside, I think the banks turned everyone into scumbags.

Got an 800 FICO? Why aren't we leveraging that great score!? It's just the whole DL (remember him) mentality of "If you paid down your home "I'd" say you didn't do a very good job of managing your finances".

Remember THAT famous quote?

19   anonymous   2007 Nov 28, 10:15am  

Bap33 - Yeah I have to admit, I'm amazed to hear people slamming WaMu here because in Silicon Valley, WF is so horrible, that WaMu is considered a big step up!

WaMu treated me OK until I got to the rampant-bouncing-of-checks stage, then the fees were a killer. I finally stopped bouncing checks by the innovated method of not writing them.

I can make much better money out here shoveling real horse shit than dealing with the imaginary kind in high-tech.

20   SP   2007 Nov 28, 11:15am  

IMHO, the hit from Alt-A could be even worse.

For one thing, the alt-A balances were much higher - many in the jumbo-loan category - esp. in the Bay Area. Resets on alt-A will be a bigger jump in monthly payment.

Also, when the subprime fell apart there was still hope that it would not spread which kept the prices sticky. After all these months of stagnation, when alt-A starts failing, even that hope won't be there.

21   Richmond   2007 Nov 28, 12:59pm  

"Grown-ups now take charge at the Fed ?"

I'll get back as soon as I finish having my stroke !!!!!!

http://biz.yahoo.com/ibd/071128/issues01.html?.v=1

22   SP   2007 Nov 28, 3:06pm  

Richmond Says:
“Grown-ups now take charge at the Fed ?”

That was a bizarre, one-sided article.

"More importantly, Kohn suggested the Fed wouldn't let fear of moral hazard -- bailing out banks and investors after they've made bad bets -- deter policymakers from doing the right thing."

This Kohnhead (tm) chap needs to be taken out back by the dumpster and have the shit kicked out of him.

23   Duke   2007 Nov 28, 9:46pm  

What will it take to have prices soften in the Fortress?

My theories are:
1. Bursting Credit Bubble leads to recession which leads to job loss.
2. Housing is at the next 10+ years of appreciation. Lots of boomers realize the economics of retire today by selling now vs waiting 5 years and then having to work 5 more after that.
3. Virtual officing? Something to allow more days of telecomuting.
4. Shifting paradigm. Fortress grows tired of spending all of dual income on housing.
5. Changing expectations. Fortress crowd realizes that Tech East gets them an actual mansion in Raleigh burbs instead of the tract home of the Penninsula.
6. Bad specuvesting of the Fortress crowd drags down their primary.
7. Regulatory change? Mortgage Interest Deduction severely curtailed and capital gains on housing reverts to old statutes.

The simple truth appears to be that the Fortress can afford the current pricing and have modified their expectations to accept small tract homes built in the 50s as worthy of their million plus dollars. Even as we see drops up to 50% in Sac, East Bay, Modesto, South Bay, we will see something like 20% in the Fortress?

What do you think? :)

24   HeadSet   2007 Nov 28, 10:19pm  

Fortress crowd realizes that Tech East gets them an actual mansion in Raleigh burbs instead of the tract home of the Penninsula.

If you are in the Fortress, you may want to stay. Tech East is trailer courts, hurricanes, hick accents, inbred neighbors, and distrust of the new and different. Also, no good eating establishments since the locals tastes are low enough for road kill. No "Mediterranean Climate," no charm, and people only bathe on Saturday. Best to just stay where you are and live among others with similar expectations of house prices. No need to come to Tech East and inflate the local housing markets while saying "Gee, that house would be cheap at twice the price!" Great idea - Stay put!!

25   DinOR   2007 Nov 28, 10:29pm  

SP,

Great observation on Alt A. It's just subprime with larger loan amounts. At least w/ a subprime reset Joe Bob could put in a few extra hours or pick up some work at HD to make up the difference (for awhile). Will the Alt A crowd be as resourceful? Doubt it, and even if they were, how exactly does one fill a $3,000 a month hole w/ part-time work?

26   Duke   2007 Nov 28, 11:45pm  

Alt-A crowd may be able to bring more cash to the table to get their re-fi package.
Some of the Alt-A crowd just thought they would move in 2 and use cap gains to make money. With housing going negative they can just move other assets into their loan and sit tight for a while. Mebbe a long while.

27   anonymous   2007 Nov 29, 12:18am  

The Original Bankster -- Shoveling horse shit etc out here can be $50 an hour. Most jobs especially most jobs a whitie can get in the Bay Area are $10 an hour at most.

You do the math!

Yes, and the BA is overfull of Chindians who are convinced they're going to get rich.

But it gets worse! Gupta comes over on an H1B visa, top 10% at IIT etc really smart guy who's worked his ass off. OK. That's great. But then his prearranged wife since the age of 6 comes over with her 89 IQ. And starts popping out kids. 5 ...6 ...7.... and let me tell you, having spent TOO much time around this kids in various BA apt complexes, those kids are NOT growing up to be auto mechanics or anything blue-collar. They're being raised utterly convinced that they'll get the same elite jobs Dad has, because Whitie owes them.

This sounds racist as hell because well .... to a great extent it is. But this is the situation in the BA and it will certainly come to some sort of a head.

28   sa   2007 Nov 29, 12:42am  

Sales of new single-family homes rose 1.7% in October from a September level that was revised down sharply

september # working days: 19
october # working days: 23

do the math. no matter how bad it is, there is always a little spin.

29   DinOR   2007 Nov 29, 12:44am  

Duke,

Good point. It may well come to pass that much of that Alt A crowd will curse the very people that "put" them in 'those' loans and the cap. gains exemp. too!

"Yeah, I'm screwed... (painful pause to reflect to self) and it's all because of that stupid mortgage broker and that DUMB tax rule!"

I certainly can't picture anyone saying that ALOUD but after 4+ years of tracking FB's I think we've got a pretty good idea how they think.

30   cb   2007 Nov 29, 12:49am  

I am aware of the Chindian factor, yesterday I listened to KQED in the morning they talked about subprime and the mortgage problems. Of the people called in that were having problems with their mortgages, they all spoke perfect English. I know that non-natives probably are less likely to call a radio program, but there seems to be plenty of accomplice in the bubble from the "natives".

31   StuckInBA   2007 Nov 29, 12:52am  

Duke :

The Fortress is built not on fundamentals but on psychology. Based on simple math, it's cheaper to send kids to private school and buy a bigger/better/newer house elsewhere in the same BA. Even option-rich or two wage earners prefer to buy houses as cheaply as possible. The reason they paid that high and/or willing to stretch as much as they can was simple. RE prices in this area never go down.

There is tremendous angst now - in people who have bought in this area. The realization that, one of two earners losing his/her job puts them in serious jeopardy - is hitting home now. That sort of mentality and discussion with friends will make a potential buyer at least take a pause.

It will take some time to see the effect in price. But bigger effect can come from elsewhere too. I have said this many times. Just a little bit of job recession or mortgage rates going over 7% will be enough to shatter the Fortress myth.

32   DennisN   2007 Nov 29, 1:07am  

2. Housing is at the next 10+ years of appreciation. Lots of boomers realize the economics of retire today by selling now vs waiting 5 years and then having to work 5 more after that.

That was me in the spring of 2006. Worked for me! I did the math and it made sense to retire then rather than work another 5 years and sell at 2011 prices. But I sold in SJ which isn't exactly "fortress".

33   sa   2007 Nov 29, 1:11am  

I bet if they removed/reduced Mortgage Interest Deduction, most of new buyers will be out of market.

34   GammaRaze   2007 Nov 29, 1:17am  

I am reading ex-sun-ren and Orig-Bankster's posts with interest. There is definitely an undercurrent of truth in what they write. And it is true that recent Chindian immigrants with no idea of housing costs have contributed in a big way to the bay area bubble.

Oh, by the way, I am an Indian immigrant.

I do know quite a few people who dream of making it big here. That includes Indians and Chinese but also a lot of whites, many of whom immigrated from other parts of this country (you don't notice them because they don't look different.) But doesn't that date back to the Gold rush days in California and pretty much the entire history of the USA? Is it unacceptable for non-whites to have such dreams? After all, it is called the American Dream not the Chindian dream.

I know a lot of Chindian families in the bay area but I don't know even one family that has 5 or 6 kids. Do you?

The "foreigners are coming and procreating here" is quite funny. Most Chindian immmigrants come here around mid-20s, work for a few years and then get married and raise a family. I see nothing unusual about that, that is just the way the demographics is. If the American public schools could teach kids math, physics and english as well as Indian schools do, maybe we wouldn't need to come in and fill the gaps? America is getting highly educated labor that is family-oriented and law-abiding without having to spend a penny on the education; you should actually be thankful.

It is easy to cherry-pick some news stories and predict gloom and doom about countries that you have never been to and know nothing about, but I believe India's economy is not as weak as you might think. It is a third world country, no doubt, so don't bother pointing that out and the government/central bank is no better than here. However, people do something called "saving" in India and the meager GDP there actually consists of something other than consumer spending. We'll see.

Finally, considering that the housing bubble has been present throughout the country, who is more to blame? The federal reserve, greedy wall street bankers, clueless borrowers or damn foreign immigrants?

Xenophobia provides an easy way out when you are looking for a scapegoat. It is human nature and I understand that. But, as far as economic analysis goes, it doesn't add much.

I promise not to comment any more on this topic and leave it up to to the moderators to decide what they want this forum to be. If I post again in this thread, it will be about real estate only.

35   anonymous   2007 Nov 29, 1:34am  

Well, we don't have enough good jobs to provide the children of the Boomers, we sure can't invite the whole 3rd world here to our collapsing economy and provide them all good tech jobs.

Good tech jobs are rare for anyone these days.

I think young Americans and by that I mean whities, last hired first fired, NO student aid, given no slack anywhere on anything types, MY people, are going to increasingly choose people like Dan'l Boone and Jackson and so on, as heros. The farmer-yeoman who can pick off a squirrel with a 10-22 or an invader with equal alacrity, is going to become the new model.

Read up over on www.theoildrum.com or www.peakoil.com if you don't believe me.

(PS on the 10-22 I shot a POS one that I think we have about $30 in the other day, and wow, that thing's a tack driver.)

36   DinOR   2007 Nov 29, 1:37am  

StuckinBA,

I've made similar observations of late. I guess since I already know the 2 or 3 basic plot lines and variations of just about everyone with a For Sale sign in their front yard, it no longer is of any interest to me.

(Pssst. We know why you're selling)

I talked w/ a realtor gal here in OR just a few days ago and she has 3 college or soon to be college age kids yet she went out and bought this huge McAlbatross in '05 and can't get rid of it. I didn't really call her out on it, again b/c we all know the drill.

I'm just looking forward to the day when sellers will drop their silly facades and get down to the business of putting this correction behind us.

37   justme   2007 Nov 29, 1:40am  

Hmm, I think that Bankers and Mortgage Brokers are getting a little too much credit for the bubble/bust lately. And the realtwhores are ever so happy to be out of the limelight and passing the blame onto another group. They are getting off the hook too easy right now.

Let's not forget that the biggest driving force behind bubble-crazy prices is and always has been realtwhores. The rest of the guilty parties are more in the category of enablers and opportunists,

Am i wrong?

38   DinOR   2007 Nov 29, 1:42am  

DennisN,

Well you little wuss! What do you MEAN... you didn't WANT another decade of gridlock traffic and office politics!? Only to sell your home at 2001 prices in 2011? Some "team player" YOU turned out to be! :)

(You know of course all your former co-workers hope you get mauled by a bear don't you?)

39   DinOR   2007 Nov 29, 1:48am  

justme,

Funny you would choose the term "enablers"? I've been using that a lot lately and found it has a number of applications. (None of which are good)

You're right though, you can look at the tax code or WS or whatever but who was Greater Fool's first and primary interface w/ "the boom"? Oh and trust me right now the MB spin is that it was WS that created the problem by even offering bogus loan products! Really?

O.K, it was WS that drove up home prices to a point to where a 30 yr. FRM wouldn't cut it! Sure, makes perfect sense.

40   DennisN   2007 Nov 29, 3:00am  

DinOR,

Well my former cow-workers are probably up stuff-creek now without a paddle. I recall one of the IT guys who worked for our legal department telling me his condo in Santa Clara had just gone up another $100K, so he did a HELOC and bought a $90K fancy-pants Mercedes sportscar. I'll bet he's a FB now.

Other attorneys told me that since I was now making a HaHa that I could qualify to upgrade to that nice place in Saratoga. They rolled their eyes when I tried to explain the difference between qualifying for a loan and actually being able to afford such a place. With a 30 year loan beginning at age 52, I'd have had to work to 82 to pay it off!

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