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quasigovy
378 Posts |
 Posted - 04/14/2008 : 07:19:38 AM
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Here is a company that is headed for MAJOR trouble.
They have a portfolio of neg am loans that is beyond belief. The highest concentration of these loans are in declining markets such as California.
What does it say about a comany when they stop lending in areas in which they are already levereged to the max? Huge problems.
They can spoon feed garbage to thier employees that this is just a temporary problem that the enire market is going through...... but the fact is that they have more neg am and Alt-A on the books (percentage of portfolio) then the rest of the market, and they kept closing these loans (still are closing them) much longer than the rest of the market.
They made a bet that they could still close these deals without getting nailed, going against the logic of everyone else in the market.
They were very wrong, and now they are in very big trouble.
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MisterVA
5844 Posts |
Posted - 04/14/2008 : 07:32:18 AM
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http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080414005936&newsLang=en
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quasigovy
378 Posts |
Posted - 04/14/2008 : 07:39:07 AM
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Some highlights from MisterVA's link above.
Wachovia's mortgage portfolio totals $170 billion, of which $121 billion comprises Pick-A-Pay product. Within the total portfolio, Wachovia's exposure to the troubled California residential mortgage market is considerable at approximately $78 billion (of which almost $71 billion is Pick-A-Pay product). Thus, 59% of the Pick-A-Pay portfolio is in California, and this is the slice of the mortgage portfolio that has demonstrated the most deterioration to date
Although Fitch has affirmed Wachovia's ratings at this time, if credit losses deteriorate such that, for example, Pick-A-Pay losses materially exceed the implied upper end annual loss level of 1.9% of that portfolio over the 2008 to 2009 period, it would likely have negative rating implications for Wachovia.
I would bet on those implicatons in a big way. |
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msancheznj
2127 Posts |
Posted - 04/14/2008 : 07:46:23 AM
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| Time to short Wachovia!!!! |
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propertylender.c
1067 Posts |
Posted - 04/14/2008 : 07:49:25 AM
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I believe Bank of America is next.
I really do. |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 07:51:19 AM
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quote:
Originally posted by msancheznj
Time to short Wachovia!!!!
Shorts are too risky for me. Try a Jan 2009 put around $20, much safer as a longer term play. |
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mganovsky
1686 Posts |
Posted - 04/14/2008 : 07:55:28 AM
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| I am not sure if Wachovia is going to be in trouble, most of those Pick a Pay loans were done by World, and World required 20% down, and the appraisals were tough always comming in low. The lenders that were doing pay option or pick a pay or what ever you want to call it at 95% LTV are the ones that will be in trouble. |
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Mandyvilla
2711 Posts |
Posted - 04/14/2008 : 07:59:33 AM
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quote:
Originally posted by propertylender.com
I believe Bank of America is next.
I really do.
What is the basis for your statement? |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 08:08:42 AM
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quote:
Originally posted by mganovsky
I am not sure if Wachovia is going to be in trouble, most of those Pick a Pay loans were done by World, and World required 20% down, and the appraisals were tough always comming in low. The lenders that were doing pay option or pick a pay or what ever you want to call it at 95% LTV are the ones that will be in trouble.
Those loans started at 80%, then went higher. In the meantime, values are going down fast. These loans will have to be written down in value, so we are talking about huge losses in value.
They are in trouble. I know they are good for the brokers at this point and no one wants to see it happen....... but there is a reason why no one else was playing this game for the past few months. |
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homebroker@sbcgl
2067 Posts |
Posted - 04/14/2008 : 08:17:17 AM
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| CA had seen such major price drops of 20-60% of the value gone, the padded LTV by World may not do much as their once 80% LTV loan is now at 120% LTV. |
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akaagassi
137 Posts |
Posted - 04/14/2008 : 08:25:51 AM
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BofA is healthy...they wouldn't be buying Countrywide otherwise...BofA has not been in the Subprime game since 2001 and did very, very limited Pay Option Arms...
The next problem for all major banks is Home Equity...those write downs have not come yet and will be on there way...and BofA is the #1 Home Equity lender, so that is the only concern for BofA...
Wells, Chase, and all those other guys will have to deal with large Home Equity write downs just as well...
quote:
Originally posted by Mandyvilla
quote:
Originally posted by propertylender.com
I believe Bank of America is next.
I really do.
What is the basis for your statement?
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quasigovy
378 Posts |
Posted - 04/14/2008 : 08:35:20 AM
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quote:
Originally posted by akaagassi
BofA is healthy...they wouldn't be buying Countrywide otherwise...BofA has not been in the Subprime game since 2001 and did very, very limited Pay Option Arms...
The next problem for all major banks is Home Equity...those write downs have not come yet and will be on there way...and BofA is the #1 Home Equity lender, so that is the only concern for BofA...
Wells, Chase, and all those other guys will have to deal with large Home Equity write downs just as well...
quote:
Originally posted by Mandyvilla
quote:
Originally posted by propertylender.com
I believe Bank of America is next.
I really do.
What is the basis for your statement?
National City Bank is a HUGE player on equitly lines and seconds...... but they have been beaten down.
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mganovsky
1686 Posts |
Posted - 04/14/2008 : 08:40:28 AM
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I have no idea whether or not B of A is in trouble or not but want to make a point. It does not matter if B of A or C/W or Chase or any bank for that matter did or did not do sub prime loans, or stated products, pay option or NO DOC products. They were filled with greed over the last say 4 or 5 years and "BOUGHT" and filled thier internal portfollio with the Mortgage backed securties or CDO's that were full of non-prime, stated, no doc, pay option loans. Then they all used thier own models to over inflate the value of thier portfolio's so the top exec's could get huge bonus' on the Banks stock value. It is the stock holders who are and will be hurt by all this.
It is not the "write down"s that actually cause the Bank to go under but the first step in the process. If a lender has a huge writedown of there portfolio it causes the rating agencies to pay more attention to that particular Bank and if the Banks rating drops below the AAA rating then the bank has Liquidity problems, and if it can not raise the capital to maintain the required level of liquid assets then it goes under. But as you have seen the fed's will not let a major bank or player go under. Because if that happens it is not only bad news for Wall Street and our over all economy but the Worlds as well. |
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LTL220
10 Posts |
Posted - 04/14/2008 : 08:42:57 AM
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"NEW YORK — The three major ratings agencies on Monday affirmed Wachovia Corp.'s ratings"
http://www.chron.com/disp/story.mpl/ap/fn/5698729.html |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 08:43:25 AM
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quote:
Originally posted by mganovsky
I have no idea whether or not B of A is in trouble or not but want to make a point. It does not matter if B of A or C/W or Chase or any bank for that matter did or did not do sub prime loans, or stated products, pay option or NO DOC products. They were filled with greed over the last say 4 or 5 years and "BOUGHT" and filled thier internal portfollio with the Mortgage backed securties or CDO's that were full of non-prime, stated, no doc, pay option loans. Then they all used thier own models to over inflate the value of thier portfolio's so the top exec's could get huge bonus' on the Banks stock value. It is the stock holders who are and will be hurt by all this.
It is not the "write down"s that actually cause the Bank to go under but the first step in the process. If a lender has a huge writedown of there portfolio it causes the rating agencies to pay more attention to that particular Bank and if the Banks rating drops below the AAA rating then the bank has Liquidity problems, and if it can not raise the capital to maintain the required level of liquid assets then it goes under. But as you have seen the fed's will not let a major bank or player go under. Because if that happens it is not only bad news for Wall Street and our over all economy but the Worlds as well.
Oh, but they will let Wachovia go down to $10 a share.... then they will assist a purchase below that!
Lehman (LEH) may be protected.... but that stock will dive as well. |
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Originate_This
320 Posts |
Posted - 04/14/2008 : 08:50:10 AM
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quote:
Originally posted by LTL220
"NEW YORK — The three major ratings agencies on Monday affirmed Wachovia Corp.'s ratings"
http://www.chron.com/disp/story.mpl/ap/fn/5698729.html
Those ratings mean nothing. Wachovia stock price has fallen over 48% this year. It's lost almost half it's value in one year! |
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mudshark
3737 Posts |
Posted - 04/14/2008 : 08:51:37 AM
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| Unlike the others, those Pick-a-Pays allow 125 neg on the loan amount. With the way the market is, those borrowers will still be sucking wind when the 125 hits. It's a longer drop for that shoe. |
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Mandyvilla
2711 Posts |
Posted - 04/14/2008 : 09:11:55 AM
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quote:
Originally posted by mganovsky
I have no idea whether or not B of A is in trouble or not but want to make a point. It does not matter if B of A or C/W or Chase or any bank for that matter did or did not do sub prime loans, or stated products, pay option or NO DOC products. They were filled with greed over the last say 4 or 5 years and "BOUGHT" and filled thier internal portfollio with the Mortgage backed securties or CDO's that were full of non-prime, stated, no doc, pay option loans. Then they all used thier own models to over inflate the value of thier portfolio's so the top exec's could get huge bonus' on the Banks stock value. It is the stock holders who are and will be hurt by all this.
It is not the "write down"s that actually cause the Bank to go under but the first step in the process. If a lender has a huge writedown of there portfolio it causes the rating agencies to pay more attention to that particular Bank and if the Banks rating drops below the AAA rating then the bank has Liquidity problems, and if it can not raise the capital to maintain the required level of liquid assets then it goes under. But as you have seen the fed's will not let a major bank or player go under. Because if that happens it is not only bad news for Wall Street and our over all economy but the Worlds as well.
I am not saying your are incorrect, however, I suspect in the case of Bank of America, the investments were not as nearly prolific as suggested. Without sourced information, I am feeling the stroke of a broad brush. Akaagasi is on the money, the HELOC portfolio is a threat, but what many do not realize is for all B of A's conservatism, very little is not insured. Even the ACORN loans, the doctor loans, No Fee Mortgages and such were insured, but just not on the backs of the borrowers and insured as a portfolio. It was the insurance that eliminated the no money down feature on ACORN.
I can't provide any information to say we are the picture of exceptional health, but nor can I find anything that remotely suggests "we are in MAJOR trouble" or "Bank of America is next." I can only reference specific news stories that could not have even occurred had the health been in question, but even so, I can't make an imperative statement like the ones given here. I think it's only fair to post sources for these statements to back up your opinions. |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 09:12:39 AM
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quote:
Originally posted by mudshark
Unlike the others, those Pick-a-Pays allow 125 neg on the loan amount. With the way the market is, those borrowers will still be sucking wind when the 125 hits. It's a longer drop for that shoe.
And a heavier shoe at that.
I hope those people at least mow the lawn after they abandon thier homes. |
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MortgageBoarder
3027 Posts |
Posted - 04/14/2008 : 09:17:08 AM
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All I have to say is, anytime a lender or bank has been in question of being the "next to go", through several different posts on the BO, it HAS happened, every time. I remember when I was at HomeView/NovaStar and defended my company for close to a month. Not saying this will happen to Wachovia, but the BO has magic powers and somehow predicts the future, this should be a sign!!  |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 09:17:32 AM
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quote:
Originally posted by LTL220
"NEW YORK — The three major ratings agencies on Monday affirmed Wachovia Corp.'s ratings"
http://www.chron.com/disp/story.mpl/ap/fn/5698729.html
Affirmed with a warning that should the portfolio worsen that WB could be downgraded.
Is there any doubt the portfolio will worsen? None whatsoever!
So in theory, this is an affirmation with a prediction of a future downgrade.
You are welcome for the translation. |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 09:18:45 AM
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quote:
Originally posted by MortgageBoarder
All I have to say is, anytime a lender or bank has been in question of being the "next to go", through several different posts on the BO, it HAS happened, every time. I remember when I was at HomeView/NovaStar and defended my company for close to a month. Not saying this will happen to Wachovia, but the BO has magic powers and somehow predicts the future, this should be a sign!!
Wachovia bought a ton of loans from Novastar. OOOOOOOPPPS!!!!! |
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hoangad
2828 Posts |
Posted - 04/14/2008 : 09:54:47 AM
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| since they're portfolio products for world/wachovia, they will modify their loan terms switching from option arms to fixed rate loans before they let too many borrowers foreclose their properties. |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 10:18:48 AM
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quote:
Originally posted by hoangad
since they're portfolio products for world/wachovia, they will modify their loan terms switching from option arms to fixed rate loans before they let too many borrowers foreclose their properties.
Can they afford the new loan?
Can Wachovia force those who have not hiot the neg am limit yet to switch to a fixed?
Will the borrower even want to stay if they are that far upsidedown and they can buy a foreclosed property down the street for much less?
No dice. They are screwed. |
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hoangad
2828 Posts |
Posted - 04/14/2008 : 10:28:46 AM
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| i think they would rather modify the loan to 4-6% if they were backed against the wall rather than let the house foreclose yes? |
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williamspeaking
4043 Posts |
Posted - 04/14/2008 : 10:30:17 AM
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quote:
Originally posted by mganovsky
I am not sure if Wachovia is going to be in trouble, most of those Pick a Pay loans were done by World, and World required 20% down, and the appraisals were tough always comming in low. The lenders that were doing pay option or pick a pay or what ever you want to call it at 95% LTV are the ones that will be in trouble.
Always notoriously conservative with appraised values, obviously to cover their butts in a time like this, I dont think their issues will be as pletiful as some of you might. |
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ppulatie
2203 Posts |
Posted - 04/14/2008 : 10:34:34 AM
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I have a client that tried the Wachovia modification route.
He got into an Option ARM, not fully understanding it. When he realized the balance was going up, he called Wachovia to see what could be done. They put him into the Equity Builder, for $250 app fee, and said that would solve his problems. It did not.
He called them again. For $499, they modified his loan for one year, taking .5% off the margin. Problem solved. Nope.
He called them again. For $499, they gave him a 1 year rate of 7%, then it returns to adjustable after the year is over.
Now he is upside down $200k and talking legal action.
That is Wachovia's way of doing mods.
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quasigovy
378 Posts |
Posted - 04/14/2008 : 8:51:10 PM
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http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2008/04/14/daily8.html?ana=yfcpc
Some quotes from the story above-
Wachovia's (NYSE: WB) actions on Monday followed an overhaul of its forecasting tools to incorporate borrower behavior that reflects a greater willingness to walk away from their mortgages, especially when falling home prices eliminated their equity in the property. Perhaps a harbinger of things to come, the Charlotte, N.C., bank said 14 percent of its Pick a Payment loans, generically known as option ARMs, represent mortgages in which the loan-to-value now stands at 100 percent or more -- where homeowners owe more on their homes than the homes are worth. Wachovia officials declined to discuss to how that figure compares to a year ago or what they anticipate looking ahead.
Today's developments provided further evidence that the $25.5 billion bet Wachovia placed on California through its purchase of Golden West amid a slowing housing market in May 2006 was a dumb move. Observers at the time said it was a train wreck occurring in slow motion and could set the stage for the nation's fourth-largest bank to find itself stumbling into the arms of a merger partner such as Wells Fargo (NYSE: WFC).
The first question an analyst asked on Monday's call was what had changed from six weeks ago when the bank indicated its capital base and dividend were secure. The bank's executives blamed today's moves to bolster capital to accelerating deterioration in the housing market in California and elsewhere. |
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1stintegritymort
1289 Posts |
Posted - 04/14/2008 : 9:32:34 PM
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| Every LO should boycott ALL pay option ARM's, PERIOD!!!!! |
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quasigovy
378 Posts |
Posted - 04/14/2008 : 9:58:08 PM
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quote:
Originally posted by 1stintegritymortgage
Every LO should boycott ALL pay option ARM's, PERIOD!!!!!
What's up 1stinteg?
Making any stock plays as of late? |
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1stintegritymort
1289 Posts |
Posted - 04/15/2008 : 05:26:12 AM
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quote:
Originally posted by quasigovy
quote:
Originally posted by 1stintegritymortgage
Every LO should boycott ALL pay option ARM's, PERIOD!!!!!
What's up 1stinteg?
Making any stock plays as of late?
playing the ultra shorts... SKF, FXP, QID, SDS, SRS, DXD |
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superthor1022
2790 Posts |
Posted - 04/15/2008 : 07:03:43 AM
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I would love to get a Wachovia persons take on this. From someone other than me that has only been with the company for four months. Interesting that no one has replied yet.
where's bigfire and rdwyer??
-thor
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assassin17
3328 Posts |
Posted - 04/15/2008 : 07:33:40 AM
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quote:
Originally posted by superthor1022
I would love to get a Wachovia persons take on this. From someone other than me that has only been with the company for four months. Interesting that no one has replied yet.
where's bigfire and rdwyer??
Busy typing up the standard "My company is just fine, because we... blah, blah, blah" response. |
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superthor1022
2790 Posts |
Posted - 04/15/2008 : 07:41:13 AM
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I am not sure about that or not, I definately think that Wachovia is a solid company. we certainly made an il-timed acquisition of Golden West (World Savings), but I do think that based on looking at the 50,000 foot level, I believe that Wachovia is not in any immediate danger. There may be some jobs (maybe mine)or divisions, but the company as a whole will certainly survive.
-thor
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savtropiano
20 Posts |
Posted - 04/15/2008 : 07:45:09 AM
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| Pick A Pay is just one of W. problems. Does anyone remember the Sub-prime company(s) W. owened and opperated? How much of that portfolio is W. sitll holding? |
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Mandyvilla
2711 Posts |
Posted - 04/15/2008 : 07:45:57 AM
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quote:
Originally posted by assassin17
quote:
Originally posted by superthor1022
I would love to get a Wachovia persons take on this. From someone other than me that has only been with the company for four months. Interesting that no one has replied yet.
where's bigfire and rdwyer??
Busy typing up the standard "My company is just fine, because we... blah, blah, blah" response.
quote:
Originally posted by Banker0679
packing their boxes???
quote:
Originally posted by superthor1022
I would love to get a Wachovia persons take on this. From someone other than me that has only been with the company for four months. Interesting that no one has replied yet.
where's bigfire and rdwyer??
-thor
I agree, a long standing Wachovia employee perspective is needed, but do we really need the barbs? Maybe it's just me, but it sounds like there is joy to be felt if there is a potential downfall. |
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ppulatie
2203 Posts |
Posted - 04/15/2008 : 07:55:07 AM
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Wachovia posted a $363m loss for the first quarter. Add to that a $7b stock sale event, one must say that they are really beginning to feel the pinch.
And I know several people who have World Option ARMS and are in default.
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dkendall1979
8743 Posts |
Posted - 04/15/2008 : 08:51:32 AM
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Complete story taken from bizjournals:
Wachovia Corp. is seeking to raise $7 billion in capital via a stock offering and has slashed its dividend. The news comes on the same day the bank has reported a first-quarter loss of $393 million, or 20 cents per share.
In the same period last year, Charlotte, N.C.-based Wachovia earned $2.3 billion, or $1.20 per share.
Analysts had forecast, on average, that Wachovia would earn 40 cents per share in the latest quarter.
Net interest income rose to nearly $4.8 billion in the first quarter from $4.5 billion in the year-ago period.
Noninterest income fell to $3.1 billion from $3.7 billion in the first quarter of last year.
The latest results include writedowns of $2 billion related to the ongoing credit crisis.
Wachovia also set aside $2.8 billion in the latest quarter to cover problem loans. The provision largely reflects severe deterioration in the residential housing market, particularly in California and Florida.
"I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," says Ken Thompson, chief executive. "The most painful decision was to reduce the dividend because it adversely affects our shareholders. But we believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets."
Meanwhile, the bank says it will eliminate about 500 jobs in its corporate and investment banking unit, or roughly 12 percent of the division's workforce. Since the beginning of 2007, Wachovia has cut about one in four jobs in the global markets and investment banking group within its corporate and investment banking division.
Wachovia is reducing its dividend to 37 cents per share from 64 cents per share, a move the bank says will save $2 billion annually.
The bank plans to raise $7 billion via concurrent offerings of common stock and perpetual convertible preferred stock. Proceeds will be used for general corporate purposes.
"We are taking appropriate and prudent actions to further enhance our capital position in response to unprecedented economic conditions," Thompson says. "These actions will significantly increase our capital ratios, and enhance our ongoing financial flexibility."
Charlotte, N.C.-based Wachovia (NYSE: WB) acquired St. Louis-based A.G. Edwards Inc., a financial services holding company, in a $6.9 billion deal that closed Oct. 1. It creates a combined securities firm, to be based in St. Louis, with $1.1 trillion in client assets, nearly 15,000 brokers and 1,500 retail brokerage offices.
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khoiey
1311 Posts |
Posted - 04/15/2008 : 09:08:43 AM
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| If Wachovia or any other big players pull out of wholesale, all of us should start packing our boxes as well. No secondary market = no brokers/correspondent bankers. |
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scottanthony
2993 Posts |
Posted - 04/15/2008 : 09:47:24 AM
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quote:
Originally posted by hoangad
since they're portfolio products for world/wachovia, they will modify their loan terms switching from option arms to fixed rate loans before they let too many borrowers foreclose their properties.
How is that possible? Lenders do not have the power to change terms without the borrower's acceptance of the new terms. |
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williamspeaking
4043 Posts |
Posted - 04/15/2008 : 10:13:01 AM
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quote:
Originally posted by scottanthony
quote:
Originally posted by hoangad
since they're portfolio products for world/wachovia, they will modify their loan terms switching from option arms to fixed rate loans before they let too many borrowers foreclose their properties.
How is that possible? Lenders do not have the power to change terms without the borrower's acceptance of the new terms.
what borrower that was mislead into a neg-am is going to noy like getting out of the loan? |
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williamspeaking
4043 Posts |
Posted - 04/15/2008 : 11:17:59 AM
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quote:
Originally posted by MortgageBoarder
All I have to say is, anytime a lender or bank has been in question of being the "next to go", through several different posts on the BO, it HAS happened, every time. I remember when I was at HomeView/NovaStar and defended my company for close to a month. Not saying this will happen to Wachovia, but the BO has magic powers and somehow predicts the future, this should be a sign!!
Yo Justin, I emailed you through the little link on this page because I forgot your work email...hopefully you see one of these soon, email me back I want to talk to you about my dads purchase. |
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bretts
51 Posts |
Posted - 04/15/2008 : 11:27:39 AM
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| A Wachovia rep. was in my office last week advising that, not only had they taken over World, but they still offer the pay option loans. I was stunned because I thought all of the lenders were dialing back all of the "creative" stuff. |
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lucky1s
3339 Posts |
Posted - 04/15/2008 : 11:59:53 AM
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You know it always ticked me off how those retail and wholesale World guys always push that freaking option arm like it walked on water.
You know darned well they got paid more for them than other products.
Shame on World Savings. They deserve whatever they get. |
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MortgageBoarder
3027 Posts |
Posted - 04/15/2008 : 12:41:39 PM
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Hopefully you got my email. Walking in to get my hair cut as we speak, I'll give u a shout as soon as I return.
quote:
Originally posted by williamspeaking
quote:
Originally posted by MortgageBoarder
All I have to say is, anytime a lender or bank has been in question of being the "next to go", through several different posts on the BO, it HAS happened, every time. I remember when I was at HomeView/NovaStar and defended my company for close to a month. Not saying this will happen to Wachovia, but the BO has magic powers and somehow predicts the future, this should be a sign!!
Yo Justin, I emailed you through the little link on this page because I forgot your work email...hopefully you see one of these soon, email me back I want to talk to you about my dads purchase.
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RDwyer
3267 Posts |
Posted - 04/15/2008 : 4:43:57 PM
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Well, like I've said before, I won't make any comments like "not us, we're strong, blah, blah, blah" because honestly, I don't have that much insight nor do I pretend to be all-knowing. I would, however, like to address a few things in this thread.
"He got into an Option ARM, not fully understanding it."
Shame on him. I'm so sick of these borrowers claiming they didn't understand. They signed LEGAL documents that they should have read. Our disclosures are some of the clearest in the industry. If he wanted his balance to quit going up, all he had to do was pay the interest only payment. I know, I know, every borrower who ever got put into an option ARM got duped... Right.
"Wachovia bought a ton of loans from Novastar. OOOOOOOPPPS!!!!!"
Wachovia gave a loan to Novastar, they did not buy loans from them. Check your facts.
"You know it always ticked me off how those retail and wholesale World guys always push that freaking option arm like it walked on water.
You know darned well they got paid more for them than other products."
What other products?? World Savings only had ONE product. They pushed it because that's all there was.
"Every LO should boycott ALL pay option ARM's, PERIOD!!!!!"
This is simply nieve. Our product was and is a great financial tool. Did a ton of greedy LO's push it onto people without properly explaining it? Maybe. Did a bunch of greedy borrowers take without caring to understand it? Maybe. Were there lousy reps that didn't take the time to teach it? Maybe.
Here's the bottom line. The influx of easy money got everyone giving out loans to anyone with a pulse for no money down (oh, except us) and no documentation whatsoever. This caused a huge runup in prices that was totally unsustainable. It doesn't matter if we did things right or not. It doesn't matter if the products are any good or not. The simple fact that World Savings was a California based company with tons of loans in California means we're going to get nailed hard with dropping prices across the state. People will walk away. It's that simple. People will walk from their 30-year full-doc fixed rates if they're 25% underwater.
Guess what, this is not a "sub-prime" problem, or an "Option ARM" problem, it's a freakin' equity problem. All that equity was paper equity and now it's gone. Point the fingers where you will (personally, I point mine at Mr. Greenspan), but at the end of the day, it doesn't matter - people are walking and any bank with loans in CA, FL, NV, and AZ are going to take some big lumps.
BTW - I put my uncle in a Pick-a-Pay. He loves it. He's not defaulting. He makes the 15-year payment. He went stated (self-employed PI). It gives him flexibility. I did it for free because I truly believe it's the best loan in the world - just not for everyone.
One other nugget - this loan isn't new. It's been around since 1981, when World invented it. |
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scottanthony
2993 Posts |
Posted - 04/15/2008 : 5:43:07 PM
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quote:
Originally posted by williamspeaking
what borrower that was mislead into a neg-am is going to noy like getting out of the loan?
I hear ya...never sold them myself. But the ones who aren't behind and love their payments wouldn't take to being forced into a full-amort fixed. If they can offer reasonable fixed rates then what's stopping all the holders of subprime adj notes from doing the same? Oh yeah...$$$$. |
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akaagassi
137 Posts |
Posted - 04/15/2008 : 8:41:53 PM
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quote:
Originally posted by scottanthony
quote:
Originally posted by williamspeaking
what borrower that was mislead into a neg-am is going to noy like getting out of the loan?
I hear ya...never sold them myself. But the ones who aren't behind and love their payments wouldn't take to being forced into a full-amort fixed. If they can offer reasonable fixed rates then what's stopping all the holders of subprime adj notes from doing the same? Oh yeah...$$$$.
Option Arms are a financial tool..for the right individual it is the right tool...the 30 year fixed is not the right tool for everyone either...and the sad part is, like Greenspan said and we all know, people could save a good bit of $$$ by going with an adjustable when they're not going to be in the home for more than 5 years...but people are scared about it the adjustable part and a lot of the savings could've been had in hindsight after one knew for sure that they'd move w/in 5 years...
Mortgages, Insurance, Investments are all financial tools...not a female or, like a female, to get all emotional about...given the individual and their situation it is their responibility to know what they are getting themselves into and to be accountable for it...it is the loan officers duty to give them guidance on what is best for them and how to achieve it...it is the lenders responsibility to ensure that the customer is well qualifed... |
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rad
1393 Posts |
Posted - 04/15/2008 : 8:53:20 PM
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http://money.cnn.com/news/newsfeeds/articles/djf500/200804141658DOWJONESDJONLINE000575_FORTUNE5.htm?ref=patrick.net
At Wachovia, Pick-A-Pay Becomes Pick-A-Problem
April 14, 2008: 04:58 PM EST
NEW YORK -(Dow Jones)- Wachovia Corp.'s (WB) controversial Pick-a-Payment mortgage program lets borrowers choose between four monthly payment amounts. Unfortunately for Wachovia, these "Pick-a-Pay" borrowers are increasingly inventing a fifth choice: Not making mortgage payments at all.
The Charlotte bank reported on Monday a $350 million loss during this year's first quarter, due in large part to stunningly high losses within its $121 billion-plus book of flexible-payment, or Pick-a-Payment, mortgages - a legacy of Wachovia's ill-conceived 2006 purchase of Golden West Financial.
On Monday, Wachovia conceded total losses from Pick-A-Pay loans could eventually amount to a staggering 7% to 8% of the loans' combined value, a range of $8.5 billion to $9.7 billion - meaning the bank, and its shareholders, will likely be coping with Pick-a-Pay losses for years to come.
Among Wachovia's book of Pick-a-Pay loans, "nonperforming assets" - or soured loans - "grew 309.8% year-over-year," compared with an annual bad-loan growth rate of 119.7% for Wachovia's traditional mortgages, said Byron MacLeod, an analyst with Gradient Analytics, in a note to investors.
"To be sure, neither figure is good," wrote MacLeod, "but the Pick-a-Payment loan portfolio appears to carry substantially greater risk."
Losses from Pick-a-Pay loans totaled $1.1 billion in the first quarter alone, said Wachovia, accounting for more than one-fourth of the $4.1 billion in asset write-downs and loan-loss provisions that Wachovia reported.
In its earnings report, Wachovia announced it would raise $7 billion from the sale of common and preferred stock in order to offset present and future losses that Wachovia says will continue racking up through 2009.
Almost 60% of Wachovia's current Pick-a-Pay mortgages were written in the now- tanking California housing market, which is also the former stomping grounds of Golden West Financial Corp., the lender that Wachovia acquired for $25 billion in 2006.
Wachovia acquired Golden West at the height of the real-estate boom in order to quickly expand its nontraditional home-lending business, a once-lucrative industry that provided mortgages to riskier buyers by using less stringent underwriting guidelines.
That deal gave Wachovia the very same "option-ARM" lending business that's now at fault for so many of Wachovia's losses.
According to Wachovia's Web site, Pick-a-Payment loans are fixed- and adjustable-rate loans that allow borrowers to make a range of monthly payment amounts, including partial-interest payments that add the unpaid interest to the homeowner's loan balance. Wachovia has taken fire from consumer groups and analysts for offering the products, which critics say encourage borrowers to fall behind in repaying their mortgages, leading to more frequent delinquencies and foreclosures.
Data released Monday day gives credence to those critical claims: According to Wachovia, more than four of every 10 Pick-a-Payment mortgage holders, about 41%, have elected to pay the minimum payment allowed in each of the past 12 months.
This trend bodes very poorly for Wachovia's performance over the next few years since housing values in most regions are falling, leaving borrowers with less equity - and banks with less collateral to rely on when borrowers stop paying. Wachovia said it projects housing values will fall another 6.8% nationwide before hitting bottom in "mid-2009."
The length and severity of that decline is crucial, since borrowers who have no home equity, or negative home equity - that is, when a homeowner's mortgage balance equals or exceeds the home's value - are quitting their mortgages en masse, choosing to face the consequences of foreclosure rather than continue to fund a home whose value is falling.
"When equity in the home approaches zero, behavior changes," said Ken Thompson, Wachovia's chief executive.
Much to Wachovia's chagrin, even homeowners with high credit scores - once thought to carry little risk of foreclosure - are walking away from their mortgages.
]In February, Don Trunslow, Wachovia's chief risk officer, told analysts that although a homeowner's FICO score "is a predictor" of whether a homeowner will keep current on their mortgage," it appears that a...borrower feeling like they've lost equity in their home seems to be an even bigger driver of whether they actually default." He later called the trend "unprecedented," adding: "I don't understand it."
If other bank officials don't understand the new psychology, say analysts, they need to get smart - and fast.
In recent years, FICO scores - or complex credit-risk rating scores produced by Fair Isaac Corp. (FIC) in Minneapolis - have come to be lenders' most popular tool in evaluating mortgage applicants' likelihood of defaulting on their mortgage payments. In fact, during the boom times, mortgage applicants with sky- high FICO scores were often approved for a mortgage automatically by lenders' underwriting software.
That rush to approve could mean even more foreclosure trouble among highly- rated mortgage borrowers lies only a short jog down the road.
"Loans were made not locally, but centrally, with little underwriting expertise beyond the increasingly unreliable FICO score," according to Meredith Whitney and Kalmon Chung, banking analysts at Oppenheimer & Co., a unit of Oppenheimer Holdings Inc. (OPY), who wrote their comments last month in a note to investors.
Wachovia said it has tightened its underwriting standards considerably, and now writes Pick-a-Pay mortgages only to well-qualified borrowers. In fact, to the dismay of many analysts, Wachovia has repeatedly said that it remains enthusiastic about the loans, and will even expand the sales force that | | | |
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