[bigtrouble]

And just to clarify again, the loans affected will not be all ARMS, just the payment option arms, such as the interest only loans, helocs, etc. These are recent and controversial instruments. I think the credit card analogy is best. Those regulations were put into place because the minimum payments reguired of borrowers were so low that the payoff of the balance would take an unreasonable amount of time. They increased the minimum payment required on all existing credit card debt. My feeeling is that the resetting of the payment option arms will be similar–requiring a greater minimum payment for carrying these loans.

Originators of loans almost never actually service the loans. Most originators have a line of credit from a major warehouse lender. Originators then pool the loans they originate and sell them according to the loans particulars, Fannie, Freddie, FHA, prime, subprime. Those loans are then contracted out to a servicer or subservicer who collects the payments and works with borrowers for a standard fee, while at the same time these loans (assets)are packaged up according to risk and sold as MBS securities.

So companies end up servicing loans of other major campanies, depending on their expertise. There is a lot of outsourcing of subservicing rights. The whole industry is very mutually dependent. Additionally every state has different laws and timelines regarding foreclosure procedures, judicial, non-judicial, number of days, original documents,etc. The industry is much more complicated than what most individuals experience of qualifying for a loan, and then making monthly payments. Your paper passes through many, many hands, belonging to many different companies, used for many different purposes. Thus, hypothesizing that the guidelines will only affect a small portion of the companies, and would be voluntary may be a bit naive.

[bigtrouble]

Powayseller,

You are assuming an high level of intergration between the originations side of the business and the servicing and/or capital markets side of the business. There have been competing camps within the industry, one saying that these exotic mortgages are too risky and a bad idea (back in 2001, by the way), the other saying that everyone else is doing them, so we will miss out on huge short-term profits if we don’t offer them. They have been in a competitive bind, hoping for the best since these are new mortgage products.

Well, the writing is on the wall, and just like the credit card reforms last year affecting all existing credit card debt, the new regulations can potentially affect existing loans.

[bigtrouble]

Play somewhere else? Why would I do that?

You guys are so friendly.

[bigtrouble]

I know you guys aren’t “hating” on me, but you are having a little fun. I’ve been around here for a while, just not posting under this name. Its sounds incediary when stated like this, but the industry will be regulating themselves. The loans on their books are much riskier than previously understood. Rich has said that the credit tightening will influence the fall of the market and its timing much more than interest rates. Consider this a possible insight to the way the tightening will go.

Many here cry data! data! and wonder why there isn’t more. That is because the big lenders and mortgage giants aren’t divulging what they know. Why should they? Private investors can have fun making spreadsheets of MLS listings and their individual decline, but the industry giants have CRADLE TO GRAVE information on every loan that they have EVER originated, serviced, pooled, sold to secondary investors, or are part of their MBS securties. Millions and millions of loans. Billions and billions of dollars. When we say the market is overvalued, that means the assets they are holding are not valued properly–this is a huge disconnect and heads will roll. This hasn’t been a real estate bubble as much as a credit bubble. Of course they are going to take action. It just will be sooner, rather than later.

So, get the popcorn ready. 2007 will be an interesting year for schadenfreude.

[bigtrouble]

Have you seen this diary:

Private Banker’s scary prescience

A quote from the linked article:

Lead author Mara Der Hovanesian, who I quoted at the head of this piece, expanded on the story during a revealingly candid 19 minute long podcast.[5] I have transcribed the following passage that occurred at time 07:55 – 08:33 on the MP3 version.
“We don’t know exactly what [option-ARM mortgage loans] they [the lenders] have on the books because they haven’t been required to disclose it. Now that is slowly changing. We’re getting little glimpses now because the regulator is mad. And they’re looking at their audits, and they’ve seen and they’ve talked to the banks and they’ve said, ‘you know, you have to get this stuff off your books, you’ve got to raise your standards and things have got to change.’ And so we’re expecting, in fact, new guidelines from the banking industry’s main watchdog, the Office of the Controller of the Currency, to come out with something.”

Payment option-ARM are readjusting next year, across the banking industry. Just like they did with minimum payments and credit cards last year.

[bigtrouble]

“And so we’re expecting, in fact, new guidelines from the banking industry’s main watchdog, the Office of the Controller of the Currency, to come out with something.”

Payment option ARMS, industry wide, will reset.

The big industry lenders know exactly what’s on their books. That’s their job. And that is why you will see them act next year.

This is speculation, of course. 🙂

[bigtrouble]

This is funny as hell.

At least I know its a controversal tidbit. This is common knowledge among the executives at the big lenders and servicers, guys. Thing is, no one is disputing the facts, that lenders have the right to do this at their discretion. This may seem like speculation to most, but then this site has been all about speculation until just recently.

The soft landing hypothesis is so obviously dead in the water; My question: are they engineering a scary hard landing all at once to get government bailouts (S&L anyone)?

Or do they want to know the true risk of their loans now, all at once, rather than later.

And feel free to hate on me, I love it! I’m the only one here who knows where this information comes from, so please, fire away.

[Author]

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