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Bad Blood Over Bad Loans
September 23, 2006 (BusinessWeek)
Mortgage defaults are rising. Wall Street thinks banks should mop up the mess
Everyone involved in the mortgage business got rich during the housing boom, including Wall Street. The biggest firms bought all the loans they could get their hands on, repackaged them, and sold them for a fee to hedge funds and other investors. Mortgage-backed securities issuance soared from $184.5 billion in 2000 to nearly $1 trillion in 2005, generating more than $1 billion in fees last year.
But now that the real estate tide is ebbing, trash is starting to wash up on shore. Mortgage delinquencies are zooming -- bad news for the banks, Wall Street firms, and investors holding loans.
AntiSpin: Just as in the case of the stock market bubble of the late 1990's, in spite of numerous warnings, and evidence of abuses was everywhere, the regulators didn't show up until after the bubble was over and bubble generated capital gains tax revenue is in the government coffers. Now that the housing bubble is over–right on cue–the regulators are starting to ask questions. To wit:
Regulators hit backloaded mortgages
September 21, 2006 (THE WASHINGTON TIMES)
September 23, 2006 (BusinessWeek)
Mortgage defaults are rising. Wall Street thinks banks should mop up the mess
Everyone involved in the mortgage business got rich during the housing boom, including Wall Street. The biggest firms bought all the loans they could get their hands on, repackaged them, and sold them for a fee to hedge funds and other investors. Mortgage-backed securities issuance soared from $184.5 billion in 2000 to nearly $1 trillion in 2005, generating more than $1 billion in fees last year.
But now that the real estate tide is ebbing, trash is starting to wash up on shore. Mortgage delinquencies are zooming -- bad news for the banks, Wall Street firms, and investors holding loans.
AntiSpin: Just as in the case of the stock market bubble of the late 1990's, in spite of numerous warnings, and evidence of abuses was everywhere, the regulators didn't show up until after the bubble was over and bubble generated capital gains tax revenue is in the government coffers. Now that the housing bubble is over–right on cue–the regulators are starting to ask questions. To wit:
Regulators hit backloaded mortgages
September 21, 2006 (THE WASHINGTON TIMES)
Federal regulators found serious problems with backloaded mortgages that enabled buyers to buy high-priced homes in Washington and other booming markets, after examining the portfolios of six huge banks that make half the mortgage loans in the United States.
Sandra Thompson, a director at the Federal Deposit Insurance Corp., testified yesterday that some borrowers were not qualified to make escalating payments required under the loans, and the banks loosened their standards considerably to enable buyers to qualify, including "layering on" risks such as requiring no down payment or proof of income.
The problems raise the risk of defaults and foreclosures as the housing market stagnates, she told the Senate Banking, Housing and Urban Affairs Committee in Congress' first hearing on the new breed of mortgages, sometimes called "exotic" or "alternative" loans because they do not offer standard, fixed payments like those on 30-year mortgages.
Ms. Thompson said the bank insurance agency and other federal regulators soon will be issuing rules that prohibit banks from offering loans to consumers who cannot handle future payment increases and require more rigorous disclosures about the risks of the mortgages.
Ms. Thomson, what rock have you been living under for the past three years? Finally going to put a skull and crossbones warning label on suicide loans? Good idea! Question is, now what are the banks going to sell? They ran out of credit-worthy borrowers years ago. Sandra Thompson, a director at the Federal Deposit Insurance Corp., testified yesterday that some borrowers were not qualified to make escalating payments required under the loans, and the banks loosened their standards considerably to enable buyers to qualify, including "layering on" risks such as requiring no down payment or proof of income.
The problems raise the risk of defaults and foreclosures as the housing market stagnates, she told the Senate Banking, Housing and Urban Affairs Committee in Congress' first hearing on the new breed of mortgages, sometimes called "exotic" or "alternative" loans because they do not offer standard, fixed payments like those on 30-year mortgages.
Ms. Thompson said the bank insurance agency and other federal regulators soon will be issuing rules that prohibit banks from offering loans to consumers who cannot handle future payment increases and require more rigorous disclosures about the risks of the mortgages.
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