[davelj]

[quote=gandalf]davelj, how does this apply after the loan has been pooled, sold and securitized, with ownership of the debt instrument transferred from originating bank to whatever corporate vehicle owns the pool behind a given security? Bank servicing the loan is typically no longer the owner, just an agent of the owner, correct? If so, how do the above rules apply? Just curious if you had some insights into how this works.[/quote]

Totally different set of rules apply to securitization trusts because they’re not FDIC-insured institutions. Theoretically, the servicer has to keep accurate records for the pool – e.g., late payment history (30, 60, 90, 180 days delinquent, etc.), foreclosures, recoveries, etc. But other than servicing and record-keeping, that’s all the servicer cares about. Now, it’s possible that servicers (who are servicing the securitizations) also don’t have enough manpower to handle their REOs and/or are feeling pressure from the government to avoid foreclosing. But I don’t think they have any real economic (that is, “avoiding losses”) incentive to keep REOs from getting sold. Does that make sense?

[davelj]

[quote=gandalf]davelj, how does this apply after the loan has been pooled, sold and securitized, with ownership of the debt instrument transferred from originating bank to whatever corporate vehicle owns the pool behind a given security? Bank servicing the loan is typically no longer the owner, just an agent of the owner, correct? If so, how do the above rules apply? Just curious if you had some insights into how this works.[/quote]

Totally different set of rules apply to securitization trusts because they’re not FDIC-insured institutions. Theoretically, the servicer has to keep accurate records for the pool – e.g., late payment history (30, 60, 90, 180 days delinquent, etc.), foreclosures, recoveries, etc. But other than servicing and record-keeping, that’s all the servicer cares about. Now, it’s possible that servicers (who are servicing the securitizations) also don’t have enough manpower to handle their REOs and/or are feeling pressure from the government to avoid foreclosing. But I don’t think they have any real economic (that is, “avoiding losses”) incentive to keep REOs from getting sold. Does that make sense?

[davelj]

[quote=gandalf]davelj, how does this apply after the loan has been pooled, sold and securitized, with ownership of the debt instrument transferred from originating bank to whatever corporate vehicle owns the pool behind a given security? Bank servicing the loan is typically no longer the owner, just an agent of the owner, correct? If so, how do the above rules apply? Just curious if you had some insights into how this works.[/quote]

Totally different set of rules apply to securitization trusts because they’re not FDIC-insured institutions. Theoretically, the servicer has to keep accurate records for the pool – e.g., late payment history (30, 60, 90, 180 days delinquent, etc.), foreclosures, recoveries, etc. But other than servicing and record-keeping, that’s all the servicer cares about. Now, it’s possible that servicers (who are servicing the securitizations) also don’t have enough manpower to handle their REOs and/or are feeling pressure from the government to avoid foreclosing. But I don’t think they have any real economic (that is, “avoiding losses”) incentive to keep REOs from getting sold. Does that make sense?

[davelj]

[quote=gandalf]davelj, how does this apply after the loan has been pooled, sold and securitized, with ownership of the debt instrument transferred from originating bank to whatever corporate vehicle owns the pool behind a given security? Bank servicing the loan is typically no longer the owner, just an agent of the owner, correct? If so, how do the above rules apply? Just curious if you had some insights into how this works.[/quote]

Totally different set of rules apply to securitization trusts because they’re not FDIC-insured institutions. Theoretically, the servicer has to keep accurate records for the pool – e.g., late payment history (30, 60, 90, 180 days delinquent, etc.), foreclosures, recoveries, etc. But other than servicing and record-keeping, that’s all the servicer cares about. Now, it’s possible that servicers (who are servicing the securitizations) also don’t have enough manpower to handle their REOs and/or are feeling pressure from the government to avoid foreclosing. But I don’t think they have any real economic (that is, “avoiding losses”) incentive to keep REOs from getting sold. Does that make sense?

[davelj]

[quote=gdcox] This accords. What we need is a banking expert to advise when a foreclosed property has to be marked down. If it is only when it is sold and in the meantime it is valued at the valuation at time of mortgage issue, these games would be explainable.[/quote]

I sit on a couple of bank boards so I’ll field this one…

Once a loan gets classified as “doubtful” – which in the case of a SFR loan is when payments are more than 90 days past due – the lender generally has to put up a reserve equivalent to 50% of the loan’s outstanding balance. Once the property is foreclosed upon, it becomes “Other Real Estate Owned” (OREO) and if there is a negative difference between the previous reserve (at 50% of the outstanding loan balance) and the expected recovery, then an additional provision is taken to get the reserve up to where the lender “thinks” there will be no additional loss. Yes, lenders can play around with these numbers a little bit, but not nearly as much as the original poster suggests, particularly in the case of SFRs, which are pretty straightforward as far as loans go. Regulators do a reasonably good job of making sure that proper reserves are taken under a given set of circumstances, even though they don’t do a good job of regulating the quality of a lender’s original underwriting (as we’re seeing).

I have a feeling that the “shadow inventory” arising from lenders is not about deferring charge-offs but rather about lack of manpower to handle the massive overload of OREO.

[davelj]

[quote=gdcox] This accords. What we need is a banking expert to advise when a foreclosed property has to be marked down. If it is only when it is sold and in the meantime it is valued at the valuation at time of mortgage issue, these games would be explainable.[/quote]

I sit on a couple of bank boards so I’ll field this one…

Once a loan gets classified as “doubtful” – which in the case of a SFR loan is when payments are more than 90 days past due – the lender generally has to put up a reserve equivalent to 50% of the loan’s outstanding balance. Once the property is foreclosed upon, it becomes “Other Real Estate Owned” (OREO) and if there is a negative difference between the previous reserve (at 50% of the outstanding loan balance) and the expected recovery, then an additional provision is taken to get the reserve up to where the lender “thinks” there will be no additional loss. Yes, lenders can play around with these numbers a little bit, but not nearly as much as the original poster suggests, particularly in the case of SFRs, which are pretty straightforward as far as loans go. Regulators do a reasonably good job of making sure that proper reserves are taken under a given set of circumstances, even though they don’t do a good job of regulating the quality of a lender’s original underwriting (as we’re seeing).

I have a feeling that the “shadow inventory” arising from lenders is not about deferring charge-offs but rather about lack of manpower to handle the massive overload of OREO.

[davelj]

[quote=gdcox] This accords. What we need is a banking expert to advise when a foreclosed property has to be marked down. If it is only when it is sold and in the meantime it is valued at the valuation at time of mortgage issue, these games would be explainable.[/quote]

I sit on a couple of bank boards so I’ll field this one…

Once a loan gets classified as “doubtful” – which in the case of a SFR loan is when payments are more than 90 days past due – the lender generally has to put up a reserve equivalent to 50% of the loan’s outstanding balance. Once the property is foreclosed upon, it becomes “Other Real Estate Owned” (OREO) and if there is a negative difference between the previous reserve (at 50% of the outstanding loan balance) and the expected recovery, then an additional provision is taken to get the reserve up to where the lender “thinks” there will be no additional loss. Yes, lenders can play around with these numbers a little bit, but not nearly as much as the original poster suggests, particularly in the case of SFRs, which are pretty straightforward as far as loans go. Regulators do a reasonably good job of making sure that proper reserves are taken under a given set of circumstances, even though they don’t do a good job of regulating the quality of a lender’s original underwriting (as we’re seeing).

I have a feeling that the “shadow inventory” arising from lenders is not about deferring charge-offs but rather about lack of manpower to handle the massive overload of OREO.

[davelj]

[quote=gdcox] This accords. What we need is a banking expert to advise when a foreclosed property has to be marked down. If it is only when it is sold and in the meantime it is valued at the valuation at time of mortgage issue, these games would be explainable.[/quote]

I sit on a couple of bank boards so I’ll field this one…

Once a loan gets classified as “doubtful” – which in the case of a SFR loan is when payments are more than 90 days past due – the lender generally has to put up a reserve equivalent to 50% of the loan’s outstanding balance. Once the property is foreclosed upon, it becomes “Other Real Estate Owned” (OREO) and if there is a negative difference between the previous reserve (at 50% of the outstanding loan balance) and the expected recovery, then an additional provision is taken to get the reserve up to where the lender “thinks” there will be no additional loss. Yes, lenders can play around with these numbers a little bit, but not nearly as much as the original poster suggests, particularly in the case of SFRs, which are pretty straightforward as far as loans go. Regulators do a reasonably good job of making sure that proper reserves are taken under a given set of circumstances, even though they don’t do a good job of regulating the quality of a lender’s original underwriting (as we’re seeing).

I have a feeling that the “shadow inventory” arising from lenders is not about deferring charge-offs but rather about lack of manpower to handle the massive overload of OREO.

[davelj]

[quote=gdcox] This accords. What we need is a banking expert to advise when a foreclosed property has to be marked down. If it is only when it is sold and in the meantime it is valued at the valuation at time of mortgage issue, these games would be explainable.[/quote]

I sit on a couple of bank boards so I’ll field this one…

Once a loan gets classified as “doubtful” – which in the case of a SFR loan is when payments are more than 90 days past due – the lender generally has to put up a reserve equivalent to 50% of the loan’s outstanding balance. Once the property is foreclosed upon, it becomes “Other Real Estate Owned” (OREO) and if there is a negative difference between the previous reserve (at 50% of the outstanding loan balance) and the expected recovery, then an additional provision is taken to get the reserve up to where the lender “thinks” there will be no additional loss. Yes, lenders can play around with these numbers a little bit, but not nearly as much as the original poster suggests, particularly in the case of SFRs, which are pretty straightforward as far as loans go. Regulators do a reasonably good job of making sure that proper reserves are taken under a given set of circumstances, even though they don’t do a good job of regulating the quality of a lender’s original underwriting (as we’re seeing).

I have a feeling that the “shadow inventory” arising from lenders is not about deferring charge-offs but rather about lack of manpower to handle the massive overload of OREO.

[davelj]

[quote=fat_lazy_union_worker]Here’s a picture of U.S. Treas Sec Henry Paulson…

Caption this.

I’ll start….

“Dear Lord, please make this plan work…Amen”
[/quote]

Here’s mine:

“Gentlemen, I have a plan inside my hands. It’s a magical plan. Proprietary, if you will. But mainly magical. That’s why I have to keep it hidden from view – inside my hands where bad people – evil naysayers – can’t view it. Unlike previous plans, which have failed woefully thus far, this magical proprietary plan will work. And work really really well. But before I can open my hands and unveil this magical plan, I need a promise from you. Hey, what sort of magical plan would come without some strings attached, right? But I digress. What I need is access to, say, about $500 billion of our money. I say “our” because as a U.S. taxpayer I own a teeny tiny part of that $500 billion. So, it really is “our” money. Anyhow, once you promise to give me access to the $500 billion, then and only then will I open my hands and unveil the magical plan. Which, again, is going to work really really well. Hey, if you can’t trust Big Hank – the Treasury Secretary – then who can you trust, right? So, about that promise… and no finger crossing either.”

[davelj]

[quote=fat_lazy_union_worker]Here’s a picture of U.S. Treas Sec Henry Paulson…

Caption this.

I’ll start….

“Dear Lord, please make this plan work…Amen”
[/quote]

Here’s mine:

“Gentlemen, I have a plan inside my hands. It’s a magical plan. Proprietary, if you will. But mainly magical. That’s why I have to keep it hidden from view – inside my hands where bad people – evil naysayers – can’t view it. Unlike previous plans, which have failed woefully thus far, this magical proprietary plan will work. And work really really well. But before I can open my hands and unveil this magical plan, I need a promise from you. Hey, what sort of magical plan would come without some strings attached, right? But I digress. What I need is access to, say, about $500 billion of our money. I say “our” because as a U.S. taxpayer I own a teeny tiny part of that $500 billion. So, it really is “our” money. Anyhow, once you promise to give me access to the $500 billion, then and only then will I open my hands and unveil the magical plan. Which, again, is going to work really really well. Hey, if you can’t trust Big Hank – the Treasury Secretary – then who can you trust, right? So, about that promise… and no finger crossing either.”

[davelj]

[quote=fat_lazy_union_worker]Here’s a picture of U.S. Treas Sec Henry Paulson…

Caption this.

I’ll start….

“Dear Lord, please make this plan work…Amen”
[/quote]

Here’s mine:

“Gentlemen, I have a plan inside my hands. It’s a magical plan. Proprietary, if you will. But mainly magical. That’s why I have to keep it hidden from view – inside my hands where bad people – evil naysayers – can’t view it. Unlike previous plans, which have failed woefully thus far, this magical proprietary plan will work. And work really really well. But before I can open my hands and unveil this magical plan, I need a promise from you. Hey, what sort of magical plan would come without some strings attached, right? But I digress. What I need is access to, say, about $500 billion of our money. I say “our” because as a U.S. taxpayer I own a teeny tiny part of that $500 billion. So, it really is “our” money. Anyhow, once you promise to give me access to the $500 billion, then and only then will I open my hands and unveil the magical plan. Which, again, is going to work really really well. Hey, if you can’t trust Big Hank – the Treasury Secretary – then who can you trust, right? So, about that promise… and no finger crossing either.”

[davelj]

[quote=fat_lazy_union_worker]Here’s a picture of U.S. Treas Sec Henry Paulson…

Caption this.

I’ll start….

“Dear Lord, please make this plan work…Amen”
[/quote]

Here’s mine:

“Gentlemen, I have a plan inside my hands. It’s a magical plan. Proprietary, if you will. But mainly magical. That’s why I have to keep it hidden from view – inside my hands where bad people – evil naysayers – can’t view it. Unlike previous plans, which have failed woefully thus far, this magical proprietary plan will work. And work really really well. But before I can open my hands and unveil this magical plan, I need a promise from you. Hey, what sort of magical plan would come without some strings attached, right? But I digress. What I need is access to, say, about $500 billion of our money. I say “our” because as a U.S. taxpayer I own a teeny tiny part of that $500 billion. So, it really is “our” money. Anyhow, once you promise to give me access to the $500 billion, then and only then will I open my hands and unveil the magical plan. Which, again, is going to work really really well. Hey, if you can’t trust Big Hank – the Treasury Secretary – then who can you trust, right? So, about that promise… and no finger crossing either.”

[davelj]

[quote=fat_lazy_union_worker]Here’s a picture of U.S. Treas Sec Henry Paulson…

Caption this.

I’ll start….

“Dear Lord, please make this plan work…Amen”
[/quote]

Here’s mine:

“Gentlemen, I have a plan inside my hands. It’s a magical plan. Proprietary, if you will. But mainly magical. That’s why I have to keep it hidden from view – inside my hands where bad people – evil naysayers – can’t view it. Unlike previous plans, which have failed woefully thus far, this magical proprietary plan will work. And work really really well. But before I can open my hands and unveil this magical plan, I need a promise from you. Hey, what sort of magical plan would come without some strings attached, right? But I digress. What I need is access to, say, about $500 billion of our money. I say “our” because as a U.S. taxpayer I own a teeny tiny part of that $500 billion. So, it really is “our” money. Anyhow, once you promise to give me access to the $500 billion, then and only then will I open my hands and unveil the magical plan. Which, again, is going to work really really well. Hey, if you can’t trust Big Hank – the Treasury Secretary – then who can you trust, right? So, about that promise… and no finger crossing either.”

[davelj]

No, definitely “Atmospherics”… whatever that means…

[Author]

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