UltraShort Financials ProShares (SKF)
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- Mortgage Fraud Is on the Rise, Infecting the GSEs [view article]
- Lehman Brothers Take-over: Implications for Financials [view article]
- Lax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
- Bank Insiders Made Out Like Bandits [view article]
- Double Short ProShares ETFs [view article]
- Big Ben's Jackson Hole, Wyoming Pep Rally [view article]
- Double Short ProShares ETFs: Volatility Goes Both Ways [view article]
- Freddie and Fannie: Living in the Past [view article]
- Will UltraShort ETFs Experience Whiplash Again? [view article]
- Inverse (Short) Sector ETFs [view article]
- The End of U.S. Financial Domination [view article]
- Finding Relative Value in Financial Services [view article]
loading ...Recent SKF Articles
- Mortgage Fraud Is on the Rise, Infecting the GSEs
- Lax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries
- Big Ben's Jackson Hole, Wyoming Pep Rally
- Double Short ProShares ETFs
- Lehman Brothers Take-over: Implications for Financials
- Double Short ProShares ETFs: Volatility Goes Both Ways
- Freddie and Fannie: Living in the Past
- Bank Insiders Made Out Like Bandits
- Will UltraShort ETFs Experience Whiplash Again?
- Finding Relative Value in Financial Services
- Full List of Articles »
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Mortgage Fraud Is on the Rise, Infecting the GSEs [view article]
Here is how you do the california shuffle. Buy a social security number, plenty available in California, get a 0% down mortgage. Then go to the bank, get a 110% home equity loan. Move in and never make a payment. It takes a couple of years to get you out. You keep the 10% home equity loan, get two years of rent, cool man. ReplyMortgage Fraud Is on the Rise, Infecting the GSEs [view article]
Later in that same report, I understand that they're also predicting satellite radio and something called the Internet as an up and coming technology that might have legs. Reply
Mortgage Fraud Is on the Rise, Infecting the GSEs [view article]
Ah, but if that is all there is, then this cycle has not yet run it's course. The homeowner needs to see the benefit as well, or this is not yet over. Agreed? ReplyMortgage Fraud Is on the Rise, Infecting the GSEs [view article]
well thats the way banks make money, first build capital through deposits and services, pay low interest rate on those deposits, then lend the money at higher interest rates, and pocket the difference, and there you go. Does this benefit the homeowner, of course not? the middle man is the bank. ReplyLehman Brothers Take-over: Implications for Financials [view article]
Did you read "Finance for Dummies" and think you could just post an article on SA? ReplyLehman Brothers Take-over: Implications for Financials [view article]
"but since these assets will be held to maturity, ACAS will get their money back."Wow. Unless they don't.
Reply
Lax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
Thanks, Jimmy, for your penetrating and poignant article. Something is systemically wrong to allow such widespread flim-flam. ReplyLathrop
Lax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
Hello Mike, I'm glad to see you are still following my posts.The situation that I was describing in the above article deals with loans that are owned by Mortgage Backed Securities. That is, Trustee bank as Trustees for the Pass-Through Securities for Series blah blah blah.
If the loan was held by the original underwriter, there is a big incentive for the bank to work out a loan modification. Why? Because they can take a cut of the principal and still count on future payments to fund more loans which they can underwrite. A nonperforming loan can be written off the books, or counted against loss reserves, or whatnot. The important thing to remember is that a portfolio bank has the leverage to modify these loans.
Now lets look at a loan which is held by a Mortgage Backed Security pool. Some of these loans have limited recourse, which means, if a loan defaults they can send it back to the original underwriter who will replace it with performing loan. What if the original underwriter is out of business? What if the loan was from New Century or IndyMac and the bankruptcy trustee or the Federal receiver refuses to take it back? Remember, once the original underwriter goes under, the fiduciary responsibility changes. Now you have the Trustee for these Mortgage Pools caught in a bad place - if they try to modify the loan, the junior or senior tranches may call "foul" and bring a shareholder derivative suit against the Trustee Bank for not protecting their interests. A bank's interest is to stay solvent and protect itself as an ongoing business. A mortgage backed security only exists to generate yield. It doesn't underwrite loans. It can't replace loans if the original underwriter is gone. Will the original AAA insurer honor its commitment? Whats the process to unwind these securities? Who is going to "unwind" them? Is it going to be like a bankruptcy?
The point is, these mortgage backed securities have less leverage to modify loans than a portfolio loan. Five points to anyone who can name the recent commentator on CNBC who called MBS "the heroin of the financial world" . This is your housing market on drugs. Reply
Bank Insiders Made Out Like Bandits [view article]
your analysis is flawed because insider selling typically vastly outnumbers buying because vast majority of insiders shares came from compensation in the form of shares or options. already having too many shares, insiders are unlikely going to want to buy more. this is especially true for financial firms who give out stocks and options to wider percentage of their employees. a more relevant comparison would be to compare them vs. other companies who have done well. in fact, your charts show that insiders were massively selling even during 03-6 periods when things were booming. ReplyLax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
I have yet to read any story about someone putting a gun to a citizen's head and forcing him to take a exotic, mindless real estate loan. I am still waiting. ReplyLax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
why should not the dumb-dumber americans get to bail out the rich.they reelect almost the same folks to congress although they give them a 9% approval.the "weapons of mass destruction " guy,they relected."good job brownie" did a hell of a job for this country & nobody cared till the s hit the fan. Replychael
Lax Underwriting , Foreclosures, and Credit Crunch Stimulate Misery Industries [view article]
Good article, but I would like to get your comments on an exchange we had a while back re whether banks were actually taking the haircut and writing down the principal balance preemptively. This article suggests that, no, banks are not willing to write down the balance and work with the borrower, preferring foreclosure. Yet, before, you indicated that banks were taking the writedown or selling the defaulted loans to GSE's.That prior exchange follows.
I first commented:
The article and comments re modified terms disregard the impact loan recasts and teaser rates are going to have on losses in the Alt-A portfolios. The "payment shock" and related defaults associated with these factors will operate independently of interest rates. Further, because many of the borrowers could not afford the payments on their principal balances if subject to fully amortized payments at market interest rates, loan modification is simply not an option without a principal haircut (which banks don't appear willing to take on a preemptive basis).
You commented:
Uh, speaking as someone on the frontlines? The banks are taking the haircut and writing down the principal, either through short sales or loan mods. It was a good theory though.
I responded:
Uh, Jimmy Lathrop, you think First Fed is going to voluntarily take the 40%-plus haircut required to get the principal balance on this loan (from the WSJ) low enough for Mr. Truong to afford his payment?
"Dien Truong, a 35-year-old, water deliveryman, pulled out $156,000 in cash when FirstFed refinanced the $628,000 mortgage on his Richmond, Calif., home in 2005. Mr. Truong used the money as a down payment on another home and turned the FirstFed home into a rental property. But the $2,500 a month he collects in rent is no longer enough to cover his mortgage payments, which have climbed to roughly $5,100 from $1,618.
FirstFed offered to refinance him into a new loan with payments of roughly $4,250 for the first five years, but Mr. Truong says he can afford only to pay the $2,500 in rental income. Because he has been making the minimum payment, his loan balance has climbed to more than $690,000, which is more than the home is worth.
"I've been a good customer," says Mr. Truong, who hasn't made a loan payment since March. "This time my credit will be screwed up for good." His loan application shows that Mr. Truong and his wife earn $165,000 a year, more than double their actual income, says Katrina Vizinau, a housing counselor with Community Housing Development Corp. of North Richmond. Like Mr. Truong, she says, many borrowers say they didn't read the application until later."
You responded:
MichaelSchmichael - the answer is yes, because they are doing it now, or they are selling the loans to a GSE who will take the loss and let the American taxpayer bail them out until someone dissolves the GSE charters, which will not happen in the near future.
Thoughts? Reply
Bank Insiders Made Out Like Bandits [view article]
get rid of the stock option as compensation. end of story. its the biggest root of evil in this country ReplyBank Insiders Made Out Like Bandits [view article]
Good points everyone.Insider selling will occur at a great pace at companies where much of the executive compensation is in the form of stock options. As User 1 points out, that's basic portfolio management. I would add that stock option compensation blinds investors to insider sentiment and losing that tool should justify a discounted price.
Then again, I'm sure that many of these execs, especially Monzilo, knew that their companies were running at an unsustainable pace and taking on huge risk. It was in their interest to boost earnings that way, which boosted the stock price, which allowed them to get very rich exercising options. Of course, taking on all that unsustainable risk doomed their companies, but not before the execs could cash in their options. They'll retire just fine. Shareholders - not so much.
My conclusion is that options cause a conflict of interest between management and shareholders because management will try to boost earnings short term, even if doing so causes greater damage later. Just paying a steady cash salary, on the other hand, would give management incentive to pursue the long term interests of the company.
Therefore, we should avoid companies that use this type of compensation. History shows they underperform long-term - and not just financials. Reply
Lehman Brothers Take-over: Implications for Financials [view article]
Just fluff - no analysis, something a 5th grader would provide for a school report. Reply