Conversation with another friend in the “innards” of the mortgage industry

[davelj]

He didn’t mention Countrywide, Bear Stearns or Wells Fargo specifically, but they’re all obviously in varying degrees of trouble. I’d say Countrywide has the most risk of the three, followed by Bear Stearns and Wells Fargo, respectively. Wells’ exposure to the mortgage business, while large in an absolute sense, is probably the smallest of the three relative to their total business and balance sheet. But I don’t know what volume of LBO pier exposure Wells has, while we know that Bear Stearns has some and Countrywide practically none. That’s probably not very helpful, but that’s all I know.

HereWeGo, you’re mistaken if you believe this is simply a short-term interest rate issue. It is not. It’s a “risk premium” issue. Here’s the problem: even if the Fed lowers rates to 2% tomorrow, the institutions that made the ridiculous 2/28 and 3/27 subprime loans won’t be loaning out at the 2004-2006 teaser rates (2%-4%). The market won’t take the paper. Those days are over for the foreseeable future. The problem is the risk premium that gets attached to whatever “base” teaser rate the lenders need to charge (to sell the paper) is now considerably higher and will remain so for quite some time. This increased risk premium will offset any decline in funding costs. In other words, short-term rates could plummet but mortgage rates for subprime/non-conforming paper probably won’t budge (that is, unless they go higher). The market has a newfound respect for risk premia and that won’t change anytime soon. Believe me, most of these problems will not “simply disappear.” I think you have a misunderstanding of the problem.

[kev374]

HereWeGo, people can’t just refi since the availability of credit is not as before…many of these people will just not get access to the credit to refi.

[kev374]

HereWeGo, people can’t just refi since the availability of credit is not as before…many of these people will just not get access to the credit to refi.

[kev374]

HereWeGo, people can’t just refi since the availability of credit is not as before…many of these people will just not get access to the credit to refi.

[patientrenter]

Don’t forget the mortgage servicers can modify the loans down to the level at which they can be kept current… for a while longer.

Patient renter in OC

[patientrenter]

Don’t forget the mortgage servicers can modify the loans down to the level at which they can be kept current… for a while longer.

Patient renter in OC

[patientrenter]

Don’t forget the mortgage servicers can modify the loans down to the level at which they can be kept current… for a while longer.

Patient renter in OC

[HereWeGo]

Well, the banks might have to hold the paper, but that beats the heck out of buying back nonperforming paper. If the new loans performed well, eventually they would sell.

kewp- That would change with a rate cut, as the discount window is always open.

[HereWeGo]

Well, the banks might have to hold the paper, but that beats the heck out of buying back nonperforming paper. If the new loans performed well, eventually they would sell.

kewp- That would change with a rate cut, as the discount window is always open.

[HereWeGo]

Well, the banks might have to hold the paper, but that beats the heck out of buying back nonperforming paper. If the new loans performed well, eventually they would sell.

kewp- That would change with a rate cut, as the discount window is always open.

[SHILOH]

If everyone can refi at a lower rate….then the banks make no money. Correct? A refi over 30 years at a rate they could “afford” and the banks make no money but stay afloat?
Is that possible?

[SHILOH]

If everyone can refi at a lower rate….then the banks make no money. Correct? A refi over 30 years at a rate they could “afford” and the banks make no money but stay afloat?
Is that possible?

[SHILOH]

If everyone can refi at a lower rate….then the banks make no money. Correct? A refi over 30 years at a rate they could “afford” and the banks make no money but stay afloat?
Is that possible?

[cr]

With values dropping I bet most people who bought at a teaser rate within the last 3 years are upside down, unless they had at least 5% down or took all their equity from a previous home. So even if rates go back to 2% or even 1%, it won’t make an iota of difference to someone who can’t refi cover the original loan, right? Unless the bank eats the equity loss, banks aren’t in business for charity, and now the buyer has to qualify under new standards.

Point being lower rates will do little to no good, and in the bigger picture will only cause more problems: i.e. devalued dollar.

Lowering rates is throwing gasoline on the mortgage fire. It’s just going to have to burn out. Unfortunately for most, the fire is still spreading.

[cr]

With values dropping I bet most people who bought at a teaser rate within the last 3 years are upside down, unless they had at least 5% down or took all their equity from a previous home. So even if rates go back to 2% or even 1%, it won’t make an iota of difference to someone who can’t refi cover the original loan, right? Unless the bank eats the equity loss, banks aren’t in business for charity, and now the buyer has to qualify under new standards.

Point being lower rates will do little to no good, and in the bigger picture will only cause more problems: i.e. devalued dollar.

Lowering rates is throwing gasoline on the mortgage fire. It’s just going to have to burn out. Unfortunately for most, the fire is still spreading.

[Author]

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