Comments on: More banks shut down wholesale

By: Michael Rozelle

Michael Rozelle — Tue, 30 Oct 2007 12:52:54 +0000

Morgan, the numbers, I used were from an industry news paper about month old. It may be a little higher now, but not all subprime is in default. Of course there is some spill over on the A side of the world with the option arm products. 100% financing was a very bad idea, regadless of your credit score.
The real problem is the lack of confidence investors ( foreign banks, hedge funds, insurance companies, etc.) have because they don’t know how many of these problem loans they actually own within these collateral Debt Oblogations (CDOs). Because of this they don’t know the actual vaule of these investments. And because of that they have had to adjust the amount of reserves they are required to have on hand, and best to error on the conservative side. This is part the reason there is a liquity issue.

By: Morgan Brown

Morgan Brown — Tue, 30 Oct 2007 06:25:28 +0000

Michael, while I agree with Paul that wholesale will exist in a more limited role, I’m not sure I’m sold on your math. If 80% of subprime loans are still performing there is no way that the credit crunch is affecting us the way it is. I’ll take your word for it now; but I’d like to have a closer look at the numbers.

By: Michael Rozelle

Michael Rozelle — Tue, 30 Oct 2007 02:20:15 +0000

I have to agree with Paul. I have been in mtg. lending for 25 years and wholesale lending has made the industry a much more dynamic and competitive industry than it would have been if just banks were doing all the lending.
After the refi business went away in 04 there were to many lenders, especially subprime, chasing to few deals. And many news article fail to put the current mortgage industry’s problems in prospective. When the media reports a forclosure rate of 15 to 20% they fail to explain the 15 to 20% is subprime business which makes up about 10% of the 1.5 trillion mortgage market. This means about 80% of those subprime mortgages are still performing, loans which would never have been done in the early 90’s.

By: Paul Hiller

Paul Hiller — Mon, 29 Oct 2007 23:31:01 +0000

As a mortgage broker I’ve been following your articles with much interest. While I believe there will be a contraction in the channel, I believe it will survive. However, if Countrywide and Wamu fall, I may have to rethink.
There will still be a number of very lean wholesale only, agency brokers, and some of the portfolio lenders.
Eventually, there will again be an appetite in the secondary market for non-agency loans, and the fastest way to scale is wholesale. One thing is clear. Events on the ground are happening at such a rapid pace that I expect to see who will still be in the game in the next few months.