Thanks for bringing this to our attention again. We’ve discussed this before. One thing I don’t know though is: does the borrower’s loan reach a cap, at which time the principal and unpaid interest is amortized? When does the borrower have to pay this money that is already recorded as income by WaMu, and as a mortgage interest deduction by the borrower?
What happens to the tax write-off when homeowner defaults?
I expect to sell large write-downs from WaMu. Maybe WaMu is the best lender to short, because the market has not yet priced in its high risk lending. After all, earnings are up, and the $203mil in Q1 earnings is hiding that his money will be mostly lost. When that becomes apparent, WaMu will go down the slippery slope of Countrywide.
WaMu has hovered around $45 for years, while the other lenders have been punished. So isn’t WaMu the ideal short play?
