Thread: Socialist Bush
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Old 12-07-2007, 11:37 PM   #39 (permalink)
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Quote:
Originally Posted by flstf
I don't understand why you think this initiative is to protect the lenders. Like I asked in my previous post, If it is in their best interest to freeze rates then why do they need the government to force them?

I think the biggest losers may be the lenders and those who own their stocks and bonds in their mutual funds. Also I believe this initiative will cause house prices to fall even more when prospective buyers are unable to qualify for mortgages due to lenders reluctance to make loans after this government interference.
flstf, I think that I can answer your question. The "lenders" are in denial to the point that they believe their own BS. They only look at "this quarter" as far as their "bottom lines". This "bailout" might negatively impact anticipated revenue increases from ARM "resets" in the near term.

The CEO's of the largest US bank and largest brokerage, by capitalization, both lost their jobs because they either lied or did not grasp the gravity of their organizations' predicaments:
(Click on the actual post links, not the threads...to read more):
http://www.tfproject.org/tfp/search....archid=1042853

The bigger point, though, is that it is not even possible to discern who "the lenders" are. Corporations such as Countrywide made profits by underwriting ever growing numbers, until early 2007 of mortgage, heloc, and refi loans, and from the lucrative mortgage servicing operations.

They obtained "warehouse lines of credit" from money center banks and investment firms like Citi, Merrill, BofA, Lehman Bros., Morgan Stanely, etc., billions of dollars that were then loaned, and the individual loans were then "sent" to firms like Lehman and Bear Stearns to be "packaged" into multi-million dollar "tranches" sold as mortgage bonds and other mortgage backed investment paper. A "tranche" might have been made up of 95 percent 30 year mortgages of fully document AAA credit rating mortgage applicants, and 5 percent "no doc" or "low doc" applicant's loans.

As housing prices "skyed" from the ever growing influx of liquidity....the warehouse credit lines were constantly replenished by selling the "tranches" to pension funds, insurance companies, Asian and European banks, and to hedge funds and money market funds, and etc., etc....even more liquidity at looser lending terms, were offered.

It became possible because housing prices rose so predictably to sell crappy loans in tranches that contained only or mostly crappy (sub-prime and ALt-A) loans, at nice premiums (Above $1.07 per loan dollar), with few stipulations demanded by the MBS tranche buyers. Recently, resistance to increasing risk of this paper crap was overcome by conditions of purchase demanded by MBS buyers. An example is a requirement that no more than say... 3 percent of individual loans in a tranch could default due to none-payment by mortgagees in the first three months after loan origination.

Excess defaults in that narrow time window gave MBS buyers the right to "put" the entire tranch back on the issuer...say Bear Stearns, at the original purchase price. Bear could then "put" the failed tranch back on the issuer, Countrywide.

No one in the chain was concerned because they were confident that housing prices would encounter no obstacles to their continued rise. These were the guys turning the knobs on the liquidity faucet. They were underwriting new loans and refis, home buyers were "trading up", and the packages of mortgages were sought after by investors and funds. The "bubble" hinged on the increasing liquidity, and that still is not appreciated, as seen on this thread. Houses will sell for what the market will bear, and, as prices decline, potential, qualified buyers anitcipate still lower prices to come....causing still lower prices. This is the mirror opposite of the "I better buy now, or I'll have to pay more if I wait any longer. This is only the beginning of the opposite of the "up" trend in prices that began as far back as 1998....

Most of the default time windows for the tranches of the "sub-prme" mess have expired.

Now the risk is due to fraudulant underwritng. Pension funds, for example, will hire lawyers and accountants to pour over the individual loans in mortgage backed tranches that the funds are now stuck with and are either untradeable, illiquid, or worth less than 30 cents per dollar paid for the tranch by the fund. If lax underwriting or easily verified false assertions are found, or things like threats of loss of assignments by the mortgage underwriter against appraisers who do not provide a high enough number, or worse...collusion between underwriters and affiliated (in house) appraisers to inflate appraised values, to a attempt to prove in court that the fraud justifies "putting" the tranch back on the issuer in exchange for a full refund.

No one knows who "owns" an individual loan. In addition, derivatives and "SIVS" were issued and purchased by counter parties to "insure", or simply to "place bets" on the appreciation or decline of the mortgage backed paper resale value....it's liquidity.

No one knows which "counter parties" are responsible for "covering" the exposure of an issuer or current holder of mortgage backed paper, if the "paper" loses value or is "put" back on the issuer, because fraud or lax underwritng is proven, or because too many mortgagees with loans packaged in a given tranch, were to stop making monthly payments, so no one knows for certain of the soundness, the ability to cover a derivative or SIV counter party obligation.

Merrill has been caught issuing "SIVs" of untradeable or devalued mortgage backed paper and transferring them to "shell" entities, to keep them "off the books" of Merrill itself, to disguise it's actual "paper" losses. Enron did the same thing. All of the other banks and brokerages involved are suspected of doing likewise.

I've only touched on a description of what a fucked up, obscured mess this has become. The lack of transparency begets a liquidity crisis. Banks refuse to lend to each other "over night" out of fear that the executives of bank "A" may arrive at their desks the next morning and hear that bank "B" that it lent a billion to, just the night before, has been closed by the Fed due to insolvency.

The "lenders" are not even the actual "lenders"...investors and funds own the actual mortgages, and they cannot gauge the "health" of the tranches that the mortgage they hold are packaged in, especially if they were rated AAA-prime. Underwrites who once enjoyed unlimited warehouse credit lines, such as Countrywide, choked on mortgage loans they kept issuing that couild no longer be packaged by Bear, Lehman, et al, into tranches. They had to eat them, and this caused their credit lines to become illiquid, and then reduced and closed, and then came margin calls when the large providers of the credit lines demanded higher collateral (margin) in cash....to cover the increased risk caused by the "Countrywide level" in the chain, being stuck with mortgages no one wanted to repurchase, and no cash to make new loans and maintain the stream of underwriting profits.

The depths of what is going to happen have not "sunk in" for these knuckleheads. They do not appreciate that housing valuations will sink much lower than they can imagine, without the ever rising liquidity "pump" of warehouse credit lines feeding cash to any mortgage applicant who could fog a mirror.

They see a bailout impacting immediately anticipated cash flow.

<h3>This is about an attempt to "save" the world economy and fiat paper currencies, the US dollar being the most in peril and consequential. I predict that "the save" it will not succeed, and I know that everyone who can sell their house now, for whatever they can fairly get for it, will come out ahead of those who attempt to sell five or six and maybe longer, years from now. My opinion does not apply only to folks who are "upside down" on their loans, it applies to every homeowner.</h3>

We've been through this before, on a much smaller scale, and after fifteen years, it did "work out", In between it took the effects of WWII, and consider that the average amount "refinanced" was under $3,000 per mortgage. We are probably at an average magnitude of 50 times that amount, today. <h3>Do you suppose that anything,(besides the average size of morgage loans...) wages....the price of a new car, the price of an ounce of gold (it was $20.00 in 1932, revalued by law to $35.00/ounce by 1935...) have risen to a multiple of 50X the 1935 cost?</h3>
Quote:
http://aolsvc.timeforkids.kol.aol.co...883451,00.html
Monday, Jun. 10, 1935
More for Mortgages

One of the first New Deal agencies was Home Owners' Loan Corp., formed to furnish urban mortgage relief by issuing its bonds in exchange for distress mortgages. Under John H. Fahey, a New England publisher, banker and shipbuilder, HOLC has lifted almost one-fifth of the U. S. home-mortgage burden, has brought relief to 862,000 small homeowners. Last November, with $2,000,000,000 of its $3,000,000,000 capitalization already dispersed and 400,000 cases pending to use up the rest, HOLC suspended all applications for loans. By March, 30% of HOLC's debtors were "a few weeks" behind in their interest payments, 16% were 90 days in arrears. Nevertheless, HOLC has instituted only 386 foreclosures, has strengthened many an insurance company by taking over wobbly real estate assets, has helped many a municipality by paying up back taxes on distressed property.

Last week Congress passed and, without comment or ceremony. President Roosevelt signed, a bill providing HOLC with another $1,750,000,000 for further Federal mortgage lifting. For the next 30 days HOLC's credit doors will again be open to qualified applicants.
It is a valuation bubble that the bailout attempts to preserve, or appreciably slow the deflation of. It cannot be done except by allowing anyone who can fog a mirror to qualify for a 100 percent loan, fed by warehouse credit lines of mortgage originators. Feeding some sheeple bagholders into the combine by letting them "keep their homes", ain't gonna help any of them....or "save" "the system".

Last edited by host; 12-07-2007 at 11:50 PM..
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