Comments on: Be Careful What You Wish For (Schumer/Paulson Edition) http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for.html Sun, 22 Nov 2009 19:08:53 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: bob http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for.html#comment-1265 bob Fri, 26 Oct 2007 18:25:00 +0000 http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for-schumerpaulson-edition/#comment-1265 <i>all these folks in trouble took out ARMs because they couldn't afford the 30-year fixed, because they were biting off more than they could chew</i><br/><br/>Not all of them - the brokers pushed those things hard because the securitizers were actually paying more for the toxic stuff than the fixed stuff. I admit that I have no hard numbers, however:<br/><br/>From <a HREF="http://online.wsj.com/article/SB119318489086669202.html" REL="nofollow"> http://online.wsj.com/article/SB119318489086669202.html </a><br/><br/><i>Broker commissions on an option ARM ranged from 1.75% to 2.5% of the loan amount last year, estimates Tom LaMalfa, a managing director of Wholesale Access, a mortgage-research firm in Columbia, Md. That compares with 1.48% for standard fixed-rate mortgages and 1.88% on subprime mortgages....<br/><br/>In one California branch office (of Countrywide), employees could win prizes, such as a trip to Hawaii, for selling the most option ARMs, says Cindy Lau, who worked for the company for more than six years.</i> all these folks in trouble took out ARMs because they couldn’t afford the 30-year fixed, because they were biting off more than they could chew

Not all of them – the brokers pushed those things hard because the securitizers were actually paying more for the toxic stuff than the fixed stuff. I admit that I have no hard numbers, however:

From http://online.wsj.com/article/SB119318489086669202.html

Broker commissions on an option ARM ranged from 1.75% to 2.5% of the loan amount last year, estimates Tom LaMalfa, a managing director of Wholesale Access, a mortgage-research firm in Columbia, Md. That compares with 1.48% for standard fixed-rate mortgages and 1.88% on subprime mortgages….

In one California branch office (of Countrywide), employees could win prizes, such as a trip to Hawaii, for selling the most option ARMs, says Cindy Lau, who worked for the company for more than six years.

]]> By: Boom2Bust.com http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for.html#comment-1259 Boom2Bust.com Fri, 26 Oct 2007 14:53:00 +0000 http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for-schumerpaulson-edition/#comment-1259 Paulson knows that the majority of distressed homeowners can't be rescued by a federal bailout. The following is from Diana Olick, CNBC's real estate reporter, on October 10:<br/><br/>Counseling is all well and good and communication is the right direction, but all these folks in trouble took out ARMs because they couldn't afford the 30-year fixed, because they were biting off more than they could chew and no amount of re-financing them is going to account for the fact that they just can't afford the house they're in. How do you help them? I'll give the Treasury Secretary credit. He admitted this was in no way a panacea and many borrowers were too far gone to help... Paulson knows that the majority of distressed homeowners can’t be rescued by a federal bailout. The following is from Diana Olick, CNBC’s real estate reporter, on October 10:

Counseling is all well and good and communication is the right direction, but all these folks in trouble took out ARMs because they couldn’t afford the 30-year fixed, because they were biting off more than they could chew and no amount of re-financing them is going to account for the fact that they just can’t afford the house they’re in. How do you help them? I’ll give the Treasury Secretary credit. He admitted this was in no way a panacea and many borrowers were too far gone to help…

]]> By: Anonymous http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for.html#comment-1254 Anonymous Fri, 26 Oct 2007 12:50:00 +0000 http://www.nakedcapitalism.com/2007/10/be-careful-what-you-wish-for-schumerpaulson-edition/#comment-1254 I think you miss the other side of the discussion that got squelched in the ugly GSE politics of the last few years. Let's assume for a moment that banks are also GSE's in that 40% or so of their funding is 'cheap' due to the explicit government guarantee. If that's acceptable, then bank size and capital also should be part of the discussion. Regarding size, nobody on Capitol Hill bothered to notice that JP Morgan Chase had $41 trillion of unspecified derivative notional contracts outstanding as of Dec 2004. Where was the outcry ? Regarding capital levels, let's just say that +- 3 months duration matching of the balance sheet requires less captail; so it's hard to evaluate your leverage concerns witout more relative risk analysis. However, I have agreed with you all along that removing GSE growth restrictions GSEs are not the answer (they wouldn't buy anyway). I do credit the GSEs with avoiding the subprime mess -- more than I can say for the banks (who were warned about the subprime risks by the GSE's as far back as 2003). I think you miss the other side of the discussion that got squelched in the ugly GSE politics of the last few years. Let’s assume for a moment that banks are also GSE’s in that 40% or so of their funding is ‘cheap’ due to the explicit government guarantee. If that’s acceptable, then bank size and capital also should be part of the discussion. Regarding size, nobody on Capitol Hill bothered to notice that JP Morgan Chase had $41 trillion of unspecified derivative notional contracts outstanding as of Dec 2004. Where was the outcry ? Regarding capital levels, let’s just say that +- 3 months duration matching of the balance sheet requires less captail; so it’s hard to evaluate your leverage concerns witout more relative risk analysis. However, I have agreed with you all along that removing GSE growth restrictions GSEs are not the answer (they wouldn’t buy anyway). I do credit the GSEs with avoiding the subprime mess — more than I can say for the banks (who were warned about the subprime risks by the GSE’s as far back as 2003).

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