Comments on: Interest Rates Unchanged and Mortgages Are Not Sexy http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/ Seattle's Leading Resource for Real Estate Information Sat, 21 Nov 2009 06:01:18 -0800 http://wordpress.org/?v=2.8.4 hourly 1 By: Brian Brady http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101684 Brian Brady Wed, 28 Feb 2007 05:43:36 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101684 "Remember, 22% of subprime is delinquent." What?/ Where are you coming up with this number? The Center for Responsible Lending? The MBAA has discredited their funky math already. The formerly cited GAAP procedures have nothing to do with reserve requirement accounting. Reserve requirements are the safety net of the banking system. So while Wachovia (Golden West has been bought by them) may book a "profit" the OTS won't allow it to be booked towards reserve requirements. Come on guys! You make some good points but grind your axe with some knowledge of banking.. The so called "exotic loans" you cite are in a danger zone but hardly the Armageddon-like proportions you predict. “Remember, 22% of subprime is delinquent.”

What?/ Where are you coming up with this number? The Center for Responsible Lending? The MBAA has discredited their funky math already.

The formerly cited GAAP procedures have nothing to do with reserve requirement accounting. Reserve requirements are the safety net of the banking system. So while Wachovia (Golden West has been bought by them) may book a “profit” the OTS won’t allow it to be booked towards reserve requirements.

Come on guys! You make some good points but grind your axe with some knowledge of banking.. The so called “exotic loans” you cite are in a danger zone but hardly the Armageddon-like proportions you predict.

]]> By: Bill Waters http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101307 Bill Waters Mon, 26 Feb 2007 20:32:22 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101307 Eleua, I watched "Enron - Smartest Guys in the Room" documentary recently - one of the techniques they used to boost revenue was to book the expected future profit from projects/investments/acquisitions in the quarter that the contract was signed, rather than after the income had been received. Have to say my first thought was "Gee, that sounds like the way banks treat deferred interest". Needless to say, the "future profit" from many of these ventures turned out to be much lower than projected. Eleua, I watched “Enron – Smartest Guys in the Room” documentary recently – one of the techniques they used to boost revenue was to book the expected future profit from projects/investments/acquisitions in the quarter that the contract was signed, rather than after the income had been received. Have to say my first thought was “Gee, that sounds like the way banks treat deferred interest”.

Needless to say, the “future profit” from many of these ventures turned out to be much lower than projected.

]]> By: Eleua http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101303 Eleua Mon, 26 Feb 2007 20:13:26 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101303 We have a certain local mega-bank sitting just off an all time high in its stock price, with a truckload of phantom interest on the books. Add in that subprime lending is the bird flu of finance, and they have a bunch of it, much of which will never ever ever be repaid, and you have the recepie for a full-blown crisis. Just how did Enron go down? Risky contracts? Selling energy it didn't have? Creative accounting? We have a certain local mega-bank sitting just off an all time high in its stock price, with a truckload of phantom interest on the books. Add in that subprime lending is the bird flu of finance, and they have a bunch of it, much of which will never ever ever be repaid, and you have the recepie for a full-blown crisis.

Just how did Enron go down? Risky contracts? Selling energy it didn’t have? Creative accounting?

]]> By: Eleua http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101282 Eleua Mon, 26 Feb 2007 18:20:36 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101282 bill waters, Yes, this is not a new accounting method. My point is the exotic subprime is relatively new, and the combination of the two may prove to be unhealthy for lending institutions (especially shareholders). The fact that WM is moving aggressively to neg-ams kind of shores up my belief that there might be some problems in their future. Remember, 22% of subprime is delinquent. This number will grow as we move into the readjustment period. It will grow exponentially as property prices decrease and interest rates rise. bill waters,

Yes, this is not a new accounting method. My point is the exotic subprime is relatively new, and the combination of the two may prove to be unhealthy for lending institutions (especially shareholders).

The fact that WM is moving aggressively to neg-ams kind of shores up my belief that there might be some problems in their future.

Remember, 22% of subprime is delinquent. This number will grow as we move into the readjustment period. It will grow exponentially as property prices decrease and interest rates rise.

]]> By: biliruben http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101279 biliruben Mon, 26 Feb 2007 17:46:11 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101279 Yeah - kinda makes painting retaining walls and placement of folding tables seem like fiddling while Rome burns. Everyone has their own perspective, I guess. Yeah – kinda makes painting retaining walls and placement of folding tables seem like fiddling while Rome burns.

Everyone has their own perspective, I guess.

]]> By: Eleua http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101278 Eleua Mon, 26 Feb 2007 17:37:45 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101278 First Fed Financial - 67% of 2Q06 pretax profits were phantom interest related GoldenWest Financial - 60% Where there is smoke, there is fire. Enjoy. First Fed Financial – 67% of 2Q06 pretax profits were phantom interest related

GoldenWest Financial – 60%

Where there is smoke, there is fire.

Enjoy.

]]> By: Bill Waters http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101277 Bill Waters Mon, 26 Feb 2007 17:35:39 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101277 The Neg-am as earnings is old news. Here's an Aug 06 article from Barrons detailing WAMU's Neg am loan portfilio stating that 55% of neg am loans by value are being paid at less than the full interest rate. WAMU has been unusually forthcoming about their loan portfolio compared to other lenders. Good for them. http://www.tpmcafe.com/blog/moonlore20002001/2006/aug/23/the_no_money_down_disaster Intersting to note WAMU has since moved to book MORE neg-am loans, so obviously they're positive on that segment of the market. The Neg-am as earnings is old news. Here’s an Aug 06 article from Barrons detailing WAMU’s Neg am loan portfilio stating that 55% of neg am loans by value are being paid at less than the full interest rate. WAMU has been unusually forthcoming about their loan portfolio compared to other lenders. Good for them.
http://www.tpmcafe.com/blog/moonlore20002001/2006/aug/23/the_no_money_down_disaster

Intersting to note WAMU has since moved to book MORE neg-am loans, so obviously they’re positive on that segment of the market.

]]> By: Eleua http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101266 Eleua Mon, 26 Feb 2007 16:27:02 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101266 billruben, You da man! Thanks. I'm not saying there is anything sinister about the practice, just that a bank that is in trouble may be able to mask that fact by digging a deeper hole - as bizzarre as that may be. It would seem the entire mortgage lending sector has bet the entire farm (both your farm and my farm) on two things: Real estate always goes up the FED will save us. That's a very bad bet. billruben,

You da man! Thanks. I’m not saying there is anything sinister about the practice, just that a bank that is in trouble may be able to mask that fact by digging a deeper hole – as bizzarre as that may be.

It would seem the entire mortgage lending sector has bet the entire farm (both your farm and my farm) on two things:

Real estate always goes up
the FED will save us.

That’s a very bad bet.

]]> By: Rhonda Porter http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101254 Rhonda Porter Mon, 26 Feb 2007 15:30:00 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101254 Brian, Thanks so much--that's a great compliment especially since it's coming from you! Today is pretty booked so I won't be able to respond to any comments until later. Brian, Thanks so much–that’s a great compliment especially since it’s coming from you! Today is pretty booked so I won’t be able to respond to any comments until later.

]]> By: biliruben http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101241 biliruben Mon, 26 Feb 2007 14:10:46 +0000 http://raincityguide.com/2007/02/23/interest-rates-unchanged-and-mortgages-are-not-sexy/#comment-101241 Here's the Business Week article: http://www.businessweek.com/magazine/content/06_37/b4000001.htm Here’s the Business Week article:

http://www.businessweek.com/magazine/content/06_37/b4000001.htm

]]>