Comments on: Ohhh..You Mean it’s Not Just a Subprime Problem??

By: Thursday links 11-29-2007 | Real Central VA

Thursday links 11-29-2007 | Real Central VA — Thu, 29 Nov 2007 12:12:13 +0000

[...] It’s not just a subprime problem (it’s the whole market) [...]

By: Fielding Mellish

Fielding Mellish — Thu, 29 Nov 2007 07:57:46 +0000

Wells’ 1.4 billion loss reserve for their 2nds is a joke. That’s less than 2% of their second mortgage portfolio, when we’ve already agreed that they were doing a lot of 2nds (behing neg am) that will be a total loss. Obviously they also have many 2nd mortgages that are extremely secure, but my educated guess is that they will lose at least 4-6 times the $1.4 billion they just set aside. That’s a lot less than Citi will have lost, but a lot more than Wall Street currently thinks Wells will lose.

By: Morgan

Morgan — Thu, 29 Nov 2007 05:32:45 +0000

mischa – good post on the subject – thanks for sharing!

By: Morgan

Morgan — Thu, 29 Nov 2007 05:30:14 +0000

aaron – as far as the 125s go i know that Irwin home equity, the leading purveyor of 125% CLTV loans has taken massive quarterly losses related to the mortgage meltdown and I am sure a big chunk of those losses are in their 125% product lines. i’ll do some more research on them for you.

but those, like the 2nds behind option arms have to be complete write offs at this point, don’t you think?

By: Morgan

Morgan — Thu, 29 Nov 2007 05:28:27 +0000

Fielding – I think that is a big part of why wells just set aside $1.4 billion for loan loss reserves as they relate to the equity division loans.

seconds behind neg ams, as you put it, are total losses at this point.

By: Morgan

Morgan — Thu, 29 Nov 2007 05:26:08 +0000

thanks paul – the sooner the msm gets it the better. more people with pay-option arms need to realize what mess they are wading further in to.

By: Morgan

Morgan — Thu, 29 Nov 2007 05:25:25 +0000

Dr HB – you are spot on. I have talked with people with good ficos who are facing bankruptcy because they took out a pay-option first, heloc second and a homecomings “3rd” private loan to buy more property that has now just tanked.

their primary residence, the one encumbered by 3 liens, is now devalued, the first lien is adjusting or recasting and they are screwed. it is happening every day. there is a lesson about diversification that i guess people missed in the euphoria. why have every thing in real estate? would you ever own just one stock? i hope not. would you ever own just stocks? again, i hope not. why did people assume having four or five houses was the right play?

By: Fielding Mellish

Fielding Mellish — Thu, 29 Nov 2007 04:23:05 +0000

I just want to get this out there, since I have not read much about it. In my neck of the woods, Wells Fargo was the only bank that would routinely go to 100% on a 2nd mortgage behind a neg am ARM. Not Wells Fargo Home Mortgage. Wells the BANK – as in, bankers in branches who also did car loans & ready reserve lines. They would just get a copy of the borrower’s appraisal (done when they did their 80% cash-out Option ARM based on a “pushed” appraisal). Then they’d look at the first mortgage balance showing on the credit report & lend the borrower as much as 100% of their supposed “equity”. No getting a copy of the first mortgage Note to see if the first mortgage allowed neg am. No stopping to wonder how a $300,000 loan could possibly have a payment of less than $800 (as shown on the credit report). So they were doing 100% 2nds that, in some cases, were probably really 110% loan-to-value. Since then, the first mortgage balance has gone up while the home value has gone down. Many of these 2nds will be total write-offs for Wells Fargo BANK. And if they were that stupid in my area, you KNOW they had to be doing a lot of stupid 2nd mortgages in California, the epicenter of Option ARMs, where Wells has a big banking “footprint”.

When a subprime first mortgage goes bad, assuming there wasn’t massive appraisal fraud, the lender is still likely to recoup at least 60-70% of the original loan. When a 2nd mortgage goes bad behind an Option ARM, it’s a total loss. So while Wells Fargo Home Mortgage pretty much kept their nose clean, not doing Option ARMs or 100% No Doc loans, I predict that Wells Fargo the bank will see significant losses on its $80+ billion portfolio of second mortgages, and, contrary to their recent assertions, the worst of their portfolio will prove not to have been purchased from correspondents but originated by their bankers.

By: Aaron

Aaron — Wed, 28 Nov 2007 20:50:18 +0000

Has anyone any idea of how the CLTV 125’s are performing in the bubble areas? Speaking of A paper and over-leveraged, what a ridiculous program that was.

By: Paul Hiller

Paul Hiller — Wed, 28 Nov 2007 18:33:05 +0000

“the collateral tied to the financing is devalued”

Thanks Morgan. Really well put. I e-mailed Ruth Simon at the WSJ the other day about this. She could be the first in the msm to get this right. To keep labeling this the “sub-prime” problem is like calling the Civil War the Fort Sumpter “incident.”