THIS IS HUGE, not only for Wachovia but for every bank or investor who owns Pay Option ARMs or securities derived from them.
It was just reported that Wachovia will stop doing Pay Option ARMs immediately and waive all prepayment penalties associated with these loans.
The official release says:
-WB will no longer offer products that result in negative amortization.
-WB waiving all fees associated with Pick-A-Payment loans effective immediately.
-WB is waiving all prepayment penalties associated with its Pick-A-Payment mortgage to allow customers complete flexibility in their home financing decisions.
Well, this certainly is embarrassing. The Federal Housing Administration – the very agency the Bush Administration and Congress trumpet as the solution to the mortgage crisis – has announced that it suffered a $4.6 billion loss last year. This is one of the worst financial performances ever for the government’s multibillion-dollar mortgage insurer.
We’d hope this news might cause Congress to reconsider its plans to turn over some $300 billion of troubled loans to an agency already in financial distress. No such luck. A bill passed by the House and now being debated on the Senate floor would expand the FHA portfolio to about 1.5 million mostly high-risk subprime mortgages. So at the very time private lenders and investors are fleeing subprime markets, Congress wants taxpayers to dive in.
What if rising interest rates priced out a large segment of possible buyers? Most of America is on fixed incomes and the potential rise in gas, food and now interest rates will surely keep possible buyers at bay. Who cares that prices of homes are so cheap when you have to put substantial money down and agree to a higher interest rate to purchase.
From Mr Mortgage analysis:
In the past month, rates on a 30-yr fixed mortgage at no points have soared from 6% to 6.75%. When rates rise, affordability falls. Every .25% increase in mortgage rates takes away approximately 2.5% in purchasing power. Therefore, roughly 7.5% of purchasing power has evaporated in the past month. This, of course, varies from individual to individual, but assumes a household with a steady income buying at the maximum allowable debt-to-income ratios, which is typical.
What if rates went up to 7.5% – 8.5%? Where would our buyers go?
Time at last to short commercial real estate
by Eric Janszen (June 17, 2008, iTulip)
A combination of macro economic and credit market factors have finally made commercial real estate (CRE) ripe for a multi-year decline. It’s been a long time coming.
We are in the early innings of a CRE bubble correction that will be compounded by recession. Vacancy rates will rise, cap rates will rise, prices will fall. The time is ripe because sellers are still hanging on in typical post-bubble fashion, refusing to acknowledge that buying commercial properties at a 2.5% cap rate when the historical average is 9% was driven by speculative fervor, that prices are still too high and are falling, and that the game of pass the CRE hot potato among PE firms using securitized debt or commercial bank lending to finance the transactions is over
bloomberg.com 2008-06-09
“The number of Americans signing contracts to buy existing homes unexpectedly rose in April as the first nationwide decline in prices since the 1930s lured buyers back into the market, a private report showed.”
It seems as if the bottom feeders have come out to gobble up the deals. Good for them.
Posted on June 9th, 2008 in Mr Mortgage’s Personal Opinions/Research
If you look at the time-line of events surrounding the Bear Stearns collapse and subsequent brokers earnings, it is obvious that the lies of the brokers, not only saved them personally, but were pivotal in changing market sentiment and dynamics leading to a multi-month rally, led by financial stocks.
Lehman was first scheduled to release earnings following the Bear Stearns implosion in March. If they would have shown a loss, like they did today, it could have meant the end of Lehman.
NEW YORK (CNNMoney.com) — Oil prices shot up nearly $11 a barrel and settled Friday at a record $138.54 on geopolitical jitters, a dollar decline and a forecast that oil would hit $150 by July 4.
Friday’s spike in the July contract for light crude on the New York Mercantile Exchange marks the largest singe-day increase in oil prices on record. The contract hit an intraday record of $139.12, breaking the previous trading record of $135.09.
Biggest jobless jump since ’86 — Wall Street sinks 400 pts
2008-06-06 — yahoo.com – The government said the number of unemployed people grew by 861,000 in May — rising to 8.5 million. The over-the-month jump in unemployment reflected more workers losing their jobs as well as an increase in those coming into the job market — especially younger people — to look for work, the Bureau of Labor Statistics said. A year ago, the number of unemployed stood at 6.9 million and the jobless rate was 4.5 percent.
This is how you get prime walkaways.
June 5, 2008 – CNN Money.com
Mortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy.
NEW YORK (CNNMoney.com) — More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.
The question everyone in real estate and the broader capital markets in the United States has been asking since August 2007 is, How do we get out of this mess? Not only how, but what actually is this mess and where could it lead our country? This is a great article.
The combination of severely negative real interest rates and inflationary pressure forced people away from fundamental investing and savings into all forms of highly leveraged speculation. The real estate bubble was one consequence, but it was really just part of a much larger bubble in leveraged finance and speculation in all asset markets, from LBOs to commodities to hedge funds.
Just a few moments ago, we announced that Ken Thompson is retiring as chief executive officer at the request of the board of directors and that I will be assuming his duties on an interim basis. I will be working closely with Ben Jenkins, vice chairman and president of the General Bank/Wealth Management, who will serve as interim chief operating officer.
All of the company’s staff functions — Finance, Marketing, Human Resources and Corporate Relations, Operations and Technology, Risk Management, Legal and Audit — will report to me. The General Bank, Wealth Management, the Corporate and Investment Bank and Capital Management will report to Ben.
The board took this action only after careful and thorough deliberation and in accordance with our responsibility for the strategic direction of the company. Over the past few weeks, as we continued to look at all the facts, cumulatively, we determined that in order to move forward Wachovia required new leadership at the top. A change in chairman was not enough.
I’m sure this news is very difficult for many of you who have worked closely with Ken over the years. He has earned the respect of his colleagues and peers, and he will be greatly missed. I hope you will join me in thanking him for his 32 years of service and in wishing him well.
Equally, I hope you will join me in the hard work that will be required of each of us as we guide our company through an especially challenging economic and operational period. The best news that I have to share today is no news at all to most of you: We have assembled one of the finest operating teams in the business. I have complete confidence that we are equipped to meet the full range of challenges that face us during this transitional period and beyond.
I encourage you to read the news release from this morning’s announcement (below), to watch today’s Take 5 show – which is airing on the satellite network and will be delivered to desktop users during the afternoon – and to tune in to a special message from me airing on V-Net beginning at 3 p.m. today Eastern time (it will be delivered via desktop video on Tuesday).
I would like to emphasize that our mission today is no different than it was last week or will be going forward: to deliver value for our shareholders and to provide exceptional service to our customers. Each day, the contributions of a 120,000-member Wachovia family are what make that mission possible.
Both hard work and great opportunities stand before us, and I know that in this company we have the determination to succeed in achieving both. Thank you.
