The "negative ammortization loan" - WaMu and others doing these loans should be taken out back and shot
True, the suckers who sign their names on these loans deserve their fate, as do crack addicts some would argue.
My take - bankers and mortgage brokers are inherently evil and need to be regulated.
September 03, 2006
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21 comments:
Ahh....nothing like the secure feeling of negative equity!
The less you pay, the less you own!
What a concept!
Even worse, the more you pay the less you own!
Neg-am loans are predicated on the notion that there is an endless supply of GF's out there to buy the home when the FB can no longer make the payments.
Seattleite here.
Been reading about WAMU the past couple days and it sounds like they're in some deep doo-doo.
Anybody knowledgeable who can address this question?:
What are their "troubles" (self-inflicted to be sure), going to do to the WA. State economy, if anything?
Thanks.
When Dan is in the 'sentencing phase' his lawyers can play the video for his jury as a character reference.
I loved:
his vacant stare until he realized he's on camera
his intro music was the bass line from the '70s classic hit "Good Times" - or the '80s Rapper's Delight.
Good times indeed Sacramento.
"In an April letter to regulators, Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said it's not the 'lender's responsibility to help the consumer determine the appropriate payment option each month.... Paternalistic regulations that underestimate the intelligence of the American public do not work.'"
Intelligence isn't the problem; a lack of decent math skills is. For example, I read on the Internet that over half of the students entering the California State University System need remedial math classes. IMHO, Interest Only, Option ARMS, and even 80/20 piggyback loans are just too complicated and sophisticated to be understood by the average American who has a high school education and perhaps a year of community college. Therefore, these loans cannot help but be PREDATORY because they ARE NOT COMPREHENDED BY THE BORROWER. IMHO, ALL these loans need to be outlawed.
HAHAH dan the mortgage guy,,hahah..REATLY PORN AT IS FINEST".
Sorry way to much bubble enjoyment tonihgt..what ever..
sorry dan get a life it is over, done been there done that...now the question I have for you "DAN" how are you going to get me out of this "HMM"?
All kiding aside and I have watched this video 3 times.....anyone else??
DOUCHBAG!?
Sure yup drunk I earned it worked 60 + hours this week....I have friends in this situation...for real......man Are they _____ fill in the blank HP'ERS/.
i DARE YOU!
I'd like to give credit to Dan the Man for being afront, though maybe too late for some. At least is not like David Lereah who keeps on spinning and no one listens to him but himself (his echo).
The principal on a negative amortization starts at the same level at as a conventional loan and then goes up. This dude showed the negative amortization balance starting at zero and then going up! And everyone applauded. Dumb and Dumber! No wonder the rest of the world is getting ahead.
The interesting point here is that lenders get to book the whole amount owed, even when the borrower pays only the minimum on an option ARM. This is legit according to GAAP "accounting principles."
At best, analysts should list earnings of CFC, WM and the like with an "*". I expect that regulators will soon be changing the rules. No doubt that lending is going to tightening, preventing people with weak finances from borrowing or refinancing.
Bill
Everyone applauded because it was a paid audience. They were sitting there waiting for their $50 check for the hour.
Bluzer said...
The principal on a negative amortization starts at the same level at as a conventional loan and then goes up. This dude showed the negative amortization balance starting at zero and then going up! And everyone applauded. Dumb and Dumber! No wonder the rest of the world is getting ahead.
Sunday, September 03, 2006 8:58:43 AM
Yeah, I was just gonna say...
According to the presentation, the fixed loan is paid off after 30 years, while the negative amortization loan starts at zero and builds up to the original amount of the principle.
NEW YORK (Dow Jones)--Merrill Lynch & Co. (MER) said Tuesday that it agreed to buy National City Corp.'s (NCC) subprime mortgage unit for $1.3 billion.
Merrill's acquisition of First Franklin - the nation's No. 9 subprime mortgage lender, last year originating more than $29 billion in loans - is the latest indication of Wall Street's efforts to beef up in mortgages. At a time when a cooling housing market threatens to damp the supply of mortgages, investment banks are looking to bring lending capabilities in-house to help them meet the growing demand for mortgage-backed securities.
The deal comes as many observers think the mortgage market is peaking. That has prompted commercial banks such as KeyCorp (KEY) to mull sales of their mortgage businesses and raised questions about the wisdom of buying lenders now. Some investment bankers say that virtually all mortgage issuers are up for sale.
In addition to First Franklin's lending infrastructure, National City is selling Merrill about $5.6 billion of loans that First Franklin originated but that National City later bought. That transaction, whose terms weren't disclosed, still leaves about $10 billion of First Franklin-originated loans on National City's balance sheet. National City said it "will continue to consider strategic options for the remaining portfolio, including sale, securitization or ongoing retention and run-off over time."
David A. Daberko, National City's chief executive, said in an interview that the bank entertained several bids for the full portfolio but couldn't reach an agreement on price. Still, he said, the overall deal "is exactly what we were hoping for."
Gerard Cassidy, an analyst with RBC Capital Markets, said Merrill apparently shied away from buying the entire portfolio due to concerns about credit risks.
"Merrill obviously didn't want to take that risk of the additional $10 billion," Cassidy said. "The deal is less satisfying to investors than if they were able to unload everything. There's still a chunk of exposure that they're left to deal with in coming months."
A Merrill spokeswoman declined to comment.
By shedding the mortgage business, National City moves closer to its goal of focusing on direct-to-consumer businesses in attractive markets. Already, the Cleveland-based bank has announced two deals to buy small Florida lenders.
National City said the First Franklin sale will generate a roughly $1 billion pretax gain, or about $1 a share after taxes. The capital freed up in the transactions "should buy back enough stock to cover the earnings given up," Daberko said. "We become a smaller company...but a much more profitable and highly valued stream of earnings."
For Merrill, the acquisition "accelerates our vertical integration in mortgages," which could become more important if the supply of mortgages dries up, said Dow Kim, president of Merrill's global markets and investment-banking group, in a statement Tuesday.
National City shares climbed 48 cents, or 1.4%, to $35.04. Merrill shares rose 57 cents, or 0.8%, to $74.36.
Merrill is just the latest investment bank to snap up a mortgage company. Following the leads of Lehman Brothers Holdings Inc. (LEH) and Bear Stearns Cos. (BSC), which boast Wall Street's biggest mortgage-origination businesses, Morgan Stanley (MS) last month agreed to buy Saxon Capital Inc. for $706 million. Deutsche Bank (DB) also recently has purchased a number of mortgage lenders.
"With three deals in three months, it's more than fair to say this is a trend," said James Ellman, a money manager at Seacliff Capital LLC, which owns shares of Merrill in its $100 million-plus portfolio.
Merrill agreed to buy First Franklin after exploring a bid earlier this year for North Fork Bancorp (NFB), which had a strong mortgage business. Merrill already has bought three smaller subprime mortgage companies, including originators Freedom Funding Ltd. and Mortgages PLC in the U.K. this year, and mortgage servicing firm Wilshire Credit Corp. in 2004.
"This acquisition, and the origination platforms in particular, fills an important gap for us domestically providing a significant presence in both the wholesale and online retail channels," said Michael Blum, head of Merrill's global structured finance and investments group.
Merrill said it will continue to operate First Franklin and its affiliated businesses - National City Home Loan Services and NationPoint - under their current names as distinct units. Merrill said the deal, expected to close in the fourth quarter, will add to its earnings by the end of 2007.
The deal has risks for Merrill. Despite the strategic value of investment banks controlling their own supply of mortgages to securitize, entering new retail businesses creates managerial challenges.
Merrill will integrate the approximately 2,800 employees of the National City mortgage units into the global structured finance and investments group of its institutional trading and investment banking division. The mortgage employees who focus on making loans to consumers with iffy credit records may chafe under new constraints imposed by Merrill's traders, said an investment banker at a rival firm who declined to be identified.
Their status within Merrill also is likely to be lower than at National City, whose primary focus was on lending. Investment banks' primary goal is to package the mortgages into securities for sale to large investors.
Dealing with individual borrowers, rather than institutional investors and corporations, also brings investment banks under the scrutiny of consumer protection and regulatory groups. Merrill's vast network of stockbrokers that cater primarily to wealthy investors gives it some experience on this front, but dealing with lower-income mortgage borrowers will expose it to more reputational risk, investors said.
"The biggest risk is that the brokers will become great targets for lawsuits and, if there is a Democrat-controlled House, congressional investigations" if a lot of mortgages to sub-prime borrowers go sour, Ellman said. "There were probably a lot of mortgages made in the last few years that shouldn't have been made."
Merrill's decision to buy only about one-third of National City's mortgage loans is comforting, Ellman said, because it shows caution about credit quality and price. "They are not taking a huge amount into their portfolio and most of what they originate will be packaged," he said.
A Merrill spokesman declined to comment. "We believe the acquisition will complement our existing third party client business, which has grown significantly in the past few years," Blum said.
Merrill in recent years has been pushing its brokers to sell credit products, such as mortgages, to wealthy investors. They will continue to market so-called prime mortgages through Merrill Lynch Credit Corp., which will remain independent of the First Franklin businesses.
Analysts for the past year have speculated that Merrill may purchase an entire bank to beef up its retail lending portfolio, but Merrill Chief Executive Stanley O'Neal and other executives have said they will remain disciplined in pursuit of consumer businesses.
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