Comments on: Subprime Foreclosure Woes: More on Securitization Creating Bad Incentives

By: moslof

moslof — Thu, 09 Jul 2009 17:48:41 +0000

The "good ol' boy" network in Georgia in 2000/2001 with a huge power center at the Augusta National Golf Club started pumping up prices using their influence with all the "wannabe" members/bankers using what to me resembled a pyramid scheme. The locals didn't know but the real push was coming from the "Big Boy" Augusta National members from Wall Street who wanted to securitizeand sell the loans. I had a close association with a member and know a little about the inner workings of this "machine" that was based on entrenched arrogance/complacency. Another Georgian, Robert Prechter has been predicting a 90% decline and the end of all securitization for the foreseeable future. This I also believe will come true.

By: VacantHomes

VacantHomes — Thu, 09 Jul 2009 14:55:21 +0000

The 26% recovery on subprime loans doesn't shock me at all. In my neighborhood, the loss severities are running between 70% and 110%, probably averaging around 90%. Granted, this is in Detroit in a neighborhood which saw a fair amount of mortgage fraud. It is also true that the foreclosures are now moving up into the larger mansions/jumbo loans.

By: DocG

DocG — Thu, 09 Jul 2009 14:24:53 +0000

Couldn't this be seen as a great opportunity for the federal government to buy up all these houses — and then rent them out to people who've been displaced from their homes and are living on the street? Is our fear of "socialism" so great that we are unwilling to even consider the most logical and humane alternatives?
http://amoleintheground.blogspot.com/2009/03/sacramento-homeless.html

By: Bruce Krasting

Bruce Krasting — Thu, 09 Jul 2009 10:56:06 +0000

We know this securitization thing did not work. Because there was no risk retention the trash was created and passed.

But without a securitization market that functions we are in big trouble. There is only $10T of private sector lending available from our banks. If they take the mortgage loans on book then they have no room for C&I, CC, or other loans.

Without a mortgage market that functions for properties in excess of the FHFA caps high end homes are going to take a very big fall. If and when they do there will be a second wave of the mortgage crisis. This will not be focused on the Agencies and $200k mortgages. The next wave will hit the Jumbos.

How fall can RE fall? I think it will go to 15 times annual rental. If I am right than hang on to your socks, the worst is yet to come.

By: russell1200

russell1200 — Thu, 09 Jul 2009 09:41:40 +0000

For reasons that somewhat allude me, Georgia is in its own little bubble land crash.

Why Atlanta and not Raleigh or Charlotte, I don't really understand.

By: ComparedToWhat?

ComparedToWhat? — Thu, 09 Jul 2009 06:01:55 +0000

I've seen mention, on Calculated Risk and elsewhere, of homeowners going through the foreclosure process but at the last minute the mortgage-holder doesn't complete the process. So the homeowner is out of the home but still legally responsible for it. No payments are being made on the loan and the house sits in limbo. From what you quote of this article, at least what's being done should enable the market to clear. With unnecessary brutality and at great social cost, of course, but that's why USA has such a tremendous comparative advantage in creating innovative financial products and hence can spend as much on "defense" as the rest of the world put together.

I wonder if selling in bulk means selling to those who have deep pockets and connections. Too damn easy to imagine gaggles of connected former Masters of the Universe taking possession of these homes from their juniors, in an opaque manner and at fire sale prices. I don't have a WSJ sub so can't know if method of sale is addressed in the article.

BTW Yves, I wonder why you don't include journalists' names when possible rather than just citing WSJ or whatever. If there's a byline, why not mention the writer's name?

By: "DoctoRx"

"DoctoRx" — Thu, 09 Jul 2009 05:53:27 +0000

Belief in the status quo ante is the key and brilliant core point.

Thomas Kuhn in "The Structure of Scientific Revolutions" pointed out that the practitioners of the old paradigm had to literally die off for the newer, better one to be accepted.

Thus zombie banks in the US despite all the lectures to the Japanese about them over 10 yrs ago.

By: Kalare Studio

Kalare Studio — Thu, 09 Jul 2009 05:44:00 +0000

Here's a link to the latest bankruptcy news in PHX. The only green shoots there are made of astroturf.

http://www.azcentral.com/business/articles/2009/07/08/20090708biz-AZBankruptcy0709.html

By: MutantCapitalism

MutantCapitalism — Thu, 09 Jul 2009 05:32:46 +0000

"Where's the logic?" some might ask in dumping REOs at give-away prices? Why the rush to 'get out of Dodge' post foreclosure? These mortgages have been milked dry, not only by mortgage servicing fraud utilized to manufacture defaults so insiders could rig their CDS bets for lucrative payouts. Nobody want to hang around and have to deal with condo fees, property taxes, maintenance and vandalism. Anything not covered by mortgage insurance makes for a sweet writedown.
Mortgage servicing, defaults and foreclosures are more profitable than i-banks would have us know.
While many PSAs do not allow for mortgage modification, the notion mods are the pathway to salvation is a joke, despite the fact that mortgage servicers have now been given some 18 Billion in TARP funds to that end. Yes, the incentives here are all wrong.
" Foreclosure is frequently more profitable to servicers than loan modification. Therefore servicers are incentivized to foreclose rather than modify loans, even if modification is in the best interest of the MBS holders and the
homeowners. "

http://www.law.georgetown.edu/faculty/levitin/documents/MBSModificationIssues_000.pdf

short 5 page piece worth reading.