Banks want a bailout

[freegeeks]

they should just start getting some funds back from all these fat CEO bonuses when times were good

 

[Fern]

Originally posted by: rchiu

Originally posted by: TheSlamma
-snip-

I still don't get why didn't you get a 15 year loan and pay it off quicker. Every loan have the option for accelerated payment. If the bank don't have a 7 year product, why should they offer one for one single customer? They have to come up with the paper work, the lawyer, the system and everything just for you? that's a little self centered don't you think?

I can see his frustration. Yeah, there's prolly some info we're not getting.

But his loan doesn't like to me like it would be too complicated for a bank. Low principal amount, excellant loan-value ratio. 2 yrs employment might be a bit short.

Sounds like maybe they didn't wanna work with him. Didn't want to go to the effort of non-conventional loan.

I'd be curious to know if the banking officer brought up the quicker payoff and offerd to print a 7 yr amort table for him?

When I refi's my commercial prop they had no problem making it whatever period I wanted. I chose 10 yrs, no problem for them. I didn't even need an appraisal (it was below the regualtory threshhold etc). They did it super quick too. I like my bank

Fern

 

[JS80]

Government should sell convertible debt out of the social security fund instead of bailout and create personal accounts. Kill two birds with one stone.

 

[rchiu]

Originally posted by: Fern

Originally posted by: rchiu

Originally posted by: TheSlamma
-snip-

I still don't get why didn't you get a 15 year loan and pay it off quicker. Every loan have the option for accelerated payment. If the bank don't have a 7 year product, why should they offer one for one single customer? They have to come up with the paper work, the lawyer, the system and everything just for you? that's a little self centered don't you think?

I can see his frustration. Yeah, there's prolly some info we're not getting.

But his loan doesn't like to me like it would be too complicated for a bank. Low principal amount, excellant loan-value ratio. 2 yrs employment might be a bit short.

Sounds like maybe they didn't wanna work with him. Didn't want to go to the effort of non-conventional loan.

I'd be curious to know if the banking officer brought up the quicker payoff and offerd to print a 7 yr amort table for him?

When I refi's my commercial prop they had no problem making it whatever period I wanted. I chose 10 yrs, no problem for them. I didn't even need an appraisal (it was below the regualtory threshhold etc). They did it super quick too. I like my bank

Fern

Well, I refi'ed with a 15 year mortgage, and I have an option to pay extra every month to reduce the interest and pay off the mortgage earlier. All I need to do is run the amortization table, set the year I want to pay off the mortgage, enter the interest rate, and calculate my monthly payment, and set my automatic payment to that new monthly payment.

How hard is that? And yeah, I think I refi'ed at around 2003 as well with 5.5% interest, completed the refi in like less than a week.

 

[LegendKiller]

Originally posted by: rchiu

Originally posted by: LegendKiller

I don't buy into the rating agencies are untrustworthy, nor do most people. People try to lump the mortgage issues with all other paper, which is complete bullcrap. The agencies got CDOs and other mortgage ABS wrong, in that they didn't use conservative enough loss proxies to determine the protection needed. Why?

Option Arms, subprime Arms, Low/No doc, "NINJA" loans were not prevelent prior to the last 5 or so years. In almost all cases the aformentioned mortgages were used for higher-credit obligors who needed the loans for some reason or other. Option arms were for high-credit people with balloon salaries, low monthly income with massive bonuses. No/Low docs were for people that were self-employed, thus didn't have a W2. Arms were for people who had short investment horizons, moving frequently, so they match-funded their houses.

Modeling of securitizations requires a lot of historical data, a nose for where things may go, and loss multiple guidance which determines the "nuclear" scenario of worst-case situations.

In all of those cases, it was for higher credit people. However, once you got out of that box, you started losing your ability to predict what was going to happen through historical situations. Add to that the fact that the collateral was in a upward spiral, you get a nasty mix of guesstimates on how to model mortgage securities. The Agencies tightened up ratings, but it wasn't enough.

In other sectors that didn't have the combination of these factors, the "perfect storm", you're still seeing problems. Where the Agency models and collateral has been fairly consistent and performance has remained strong you are seeing massive widening of pricing.

Take for example the Citi credit card offering on Feb 15th. It is a 10-year credit card AAA bond , 750MM in size, at 125bps over LIBOR. 1 year ago that bond was sitting at <10bps. It would take 40% gross consumer losses to have the AAA sustain $1 of losses within a timeframe of 6-12 months (historical losses are around 6-7%), a scenario that is almost impossible.

So why is it that you have a bond that prices so much wider now? It's certainly not because confidence. It's entirely because liquidity. People are holding money for a "what if" scenario, or they are using their available cash to delever. At this point the Fed is pointing towards this credit constriction to ease inflation through deflationary tendancies while throwing a lifeline to people by widening credit through certain channels. Ideally, the deflation through credit constriction will offset the inflation through liquidity expansion.

However, with the other factors in this world, such as energy and food costs shooting up, it may not work the way they want. Only time will tell.

However, banks, at this point, cannot fail, otherwise you won't see a credit contraction, but a credit elimination, which is not good for anybody.

Well I agree there is a liquidity problem in the market, but I believe it's the confidence issue that caused the liquidity problem. I'd bet all the MBS people said the same thing about the highest quality MBS security a year and half ago, like it would take the market to tank so and so before the bond gets hit. Well guess what, MBS got hit across the board and bond backed by mortgages got hit bad not matter what their rating was before. Credit card backed security is similar. Yes we don't have a crisis yet, and yes, some of the highest grade security looks safe according to the rating agencies. But who knows what will come in this unstable market.

I don't blame the rating agency entirely, the credit crunch and the magnitude of instruments affected by it was huge and no one could've predicted it. But the fact remained that the rating system is flawed and the rating agency couldn't provide an accurate rating when the market/economy is highly unstable. I think that's the reason that people either stay on the sideline or expect a higher premium, they just don't have the confidence in the rating, as well as the market, and that lack of confidence caused the liquidity problem.

One thing we both agree on, bank cannot fail. My believe is that if bank fail, the confidence will corrode further and create much bigger issue. There will be much bigger failure in the financial market. Many derivatives, many that have nothing to do with the mortgage, realestate will get hit, and the financial world will pay a huge premium for many instruments they depend on for many of their operations and things will grind to a halt. Trillions will be lost, and hundreds of thousand could lost their jobs.

For the most it is NOT a confidence crisis when *everything* is getting painted with a broad brush regardless of how it's performing. Sure, in some asset classes there are, but not ALL. If everything was performing poorly or was expected to in the future, then that would be one thing. However, that is definitely not the case.

I have received at least 3 research reports breaking down money market account cash balances, all money managers are talking about liquidity and keeping things dry, not because they are afraid of losses, but because they are looking opportunistically.

If it was a confidence crisis you wouldn't see AAA credit card bonds at +125, or AAA super prime auto loans at +90. You would see risk tiering to a much more massive extent, not broad-brush with everything doubling or tripling.


Some sectors, such as the LBO debt market or CLO market that might be true, but not all.

 

[rchiu]

Originally posted by: LegendKiller


Again, it is NOT a fricking confidence crisis when *everything* is getting painted with a broad brush regardless of how it's performing. Sure, in some asset classes there are, but not ALL. Do you not get that? If everything was performing poorly or was expected to in the future, then that would be one thing. However, that is definitely not the case. I work inside this environment every damn day and I price deals 2-3 times per week.

I have received at least 3 research reports breaking down money market account cash balances, all money managers are talking about liquidity and keeping things dry, not because they are afraid of losses, but because they are looking opportunistically.

If it was a confidence crisis you wouldn't see AAA credit card bonds at +125, or AAA super prime auto loans at +90. You would see risk tiering to a much more massive extent, not broad-brush with everything doubling or tripling.

Do you work in this environment or are you reading blogs?

JHC.

No I don't work in the financial environment, but I do have enough education back ground and experience to decide things for myself, and I do have friends and relatives who are in the financial industry, some very high level insiders. And if people who work in the environment are never wrong, we'd never have this crisis to start with will we? Wonder how many reports all those MBS people read a day, that sure did lots of good.

By the way, your buddy money managers are not the only one who buys bond. If the demand in the market didn't dry up, you think money managers can afford sitting around and wait for opportunities? They would have to compete with all kinds buyer, including international buyers and jump at the first opportunity they see. Many you should ask around traders in London, Japan, Frankfurt...etc to if are waiting for cheap stuff or scared of getting burned like many have already.

 

[LegendKiller]

Originally posted by: rchiu

Originally posted by: LegendKiller


Again, it is NOT a fricking confidence crisis when *everything* is getting painted with a broad brush regardless of how it's performing. Sure, in some asset classes there are, but not ALL. Do you not get that? If everything was performing poorly or was expected to in the future, then that would be one thing. However, that is definitely not the case. I work inside this environment every damn day and I price deals 2-3 times per week.

I have received at least 3 research reports breaking down money market account cash balances, all money managers are talking about liquidity and keeping things dry, not because they are afraid of losses, but because they are looking opportunistically.

If it was a confidence crisis you wouldn't see AAA credit card bonds at +125, or AAA super prime auto loans at +90. You would see risk tiering to a much more massive extent, not broad-brush with everything doubling or tripling.

Do you work in this environment or are you reading blogs?

JHC.

No I don't work in the financial environment, but I do have enough education back ground and experience to decide things for myself, and I do have friends and relatives who are in the financial industry, some very high level insiders. And if people who work in the environment are never wrong, we'd never have this crisis to start with will we? Wonder how many reports all those MBS people read a day, that sure did lots of good.

By the way, your buddy money managers are not the only one who buys bond. If the demand in the market didn't dry up, you think money managers can afford sitting around and wait for opportunities? They would have to compete with all kinds buyer, including international buyers and jump at the first opportunity they see. Many you should ask around traders in London, Japan, Frankfurt...etc to if are waiting for cheap stuff or scared of getting burned like many have already.

I know many issues being sold into europe, it all depends on the asset classes.

This is a buying bonanza for those who are being intelligent and picking the right areas.

A 10yr AAA bond at 125 will fetch a massive profit in a year or two after spread contract.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: TheSlamma
The Banks can burn.

I struggled to get a loan on my house back in 2003 because I told them my plan was to have it paid for in 7 years or less... I have a credit score in the 700's, had my job for 2 years at the time have zero debt and my house was appraised for $249,000 and I was only asking for $104,000 and had to go to 4 different banks.

Obviously they were only interested in intrest and high risk loans.. well banks you got it.. now go fuck yourselves.

I don't think we are getting the whole story.

While he's trying to imply that he got turned down by 4 different banks, I'm pretty sure that what actually happened is that he shopped 4 different banks. Hell, I'm surprised he even needed to have it appraised.
Banks love low-risk loans, especially low LTV, and 7 years is actually a long retention period in today's refi-happy mortgage market.
Probably what happened is that he called around asking for a 7 year term, he was told that 10 years is the shortest term available but he could shorten that by applying extra principal payments, whereupon he hung up cursing those evil banks!