Comments on: Wachovia, Fitch & ‘The Pay Option ARM Implosion’

By: Eagle Eye

Eagle Eye — Thu, 11 Sep 2008 18:07:31 +0000

On their latest quarterly filing, they indicate that (via the AVM), with respect to Pick-A-Pay loans, that the LTV was ORIGINALLY 71%. They indicate it is CURRENTLY 85%. This seems almost to be impossible (to me). Can someone help me with this? Do they mean to tell us that for people who went with PickAPAYs, the average downpayment was nearly 30% of the value??? c’mon. It’s on page 15 of the report. Anyone able to shine a light on this?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Trends largely reflect the continued effect of declining
home values, particularly in stressed areas such as
CA and FL
- Average Pick-a-Pay original LTV of 71%; current
average LTV of 85% (b)
- Focused on aggressive resolution of problem assets
with accelerated disposition of foreclosed properties
􀂃 Sold 1,151 properties in 2Q08 vs. 825 properties in
1Q08; new inflows to REO of 1,445
- Economic severity increased to 36% vs. 32%

By: admin

admin — Wed, 10 Sep 2008 22:17:10 +0000

Hey Herbert – you did not read my post. I clearly said…

“Now, keep in mind that Wachovia’s POA’s have a 125% maximum negative hard recast cap or 10-years, which should keep them away from outright implosion for a while. On the flip side, unlike those banks with 110% to 115% maximum negative recast caps, once a Wachovia ARM recasts the borrower has little if any chance to cure the deficiency. “

By: I_Am_Not_Herbert

I_Am_Not_Herbert — Wed, 10 Sep 2008 20:07:39 +0000

I’ve been wondering about your credibility, since your posts are always linked to by doom and gloomers. However, it’s clear by this post that you don’t do real analysis. If you did, you’d be fully aware that:

1) Wachovia has been predicting a 12% loss rate since their Q2 release. This is not news.

2) Wachovia’s Option ARMS have a 125%/10-year recast. They are not the 110%/5-year recasts that are likely to buy WaMu and Countrywide and others.

This is not hard to find information. Anyone who analyzes Wachovia regularly is well aware of this.

By: JC

JC — Fri, 05 Sep 2008 18:05:12 +0000

as the Fed bails out banks, brokers, F&F and the Big 3 with fiat currency and the Federal gov runs half trillion annual deficits the interest rate paid on Federal borrowing will zoom and the annual debt servicing cost will become unmanageable and the choice will be either a US federal gov default or a payback in hyperinflated dollars.

It’ll be hyperinflation.

By: Chris Noyes

Chris Noyes — Thu, 04 Sep 2008 02:22:43 +0000

http://www.securitization.net/article.asp?id=1&aid=8313 Wachovia has been stuck with $120 billion of the loans, mainly left over from its 2006 purchase of Golden West Financial . The severity of the potential option-ARM losses remains to be seen. The loans don’t qualify for restructuring under an American Securitization Forum framework for fast-tracking debt modifications, so lenders who want to forestall defaults by reworking terms will have to do so on their own. Data isn’t readily available on the volume of option ARMs outstanding, so the extent of potential defaults is difficult to pin down. As a matter of perspective, there were far fewer option ARMs written than subprime mortgages in recent years, but defaults are likely to hit a far-greater percentage of the loans. “It’s a scary wild card,” said David Castillo, a senior managing director at broker-dealer Further Lane Securities.

Further Lane projects that losses on securitized option ARMs could be as high as 75%. By comparison, projected losses on subprime mortgages generally range from 20-40%. http://www.securitization.net/article.asp?id=1&aid=8313

By: HousingRealist

HousingRealist — Thu, 04 Sep 2008 01:42:25 +0000

The Fed is going to keep rates low, allowing banks to earn their way out of this mess. The interest rate spreads will allow for tremendous earnings power for most banks just looking at their deposit base. When BoA pays .3% on assets and earns between 2% and 4% depending on the investment it makes, it won’t take too long to repair its balance sheet. There will be bank failures, however I don’t see the worldwide deflation and depression that many commenting above suggest. The Federal reserve will print money if necessary to prevent deflation. Deflation is not in the cards!

By: dr

dr — Wed, 03 Sep 2008 19:37:21 +0000

I thought I was pretty informed before. More so than most of my friends. Now I realize how uninformed I really was. And I was the most informed of everyone I knew. What bothers me most is the lack of attention given to what is going on around the globe. When I look at that, well, I agree, I have cash on hand.

By: Toby

Toby — Wed, 03 Sep 2008 19:36:00 +0000

dr, News runs on a cycle. Right now we get political news, alternating with a smattering of natural disaster news (hurricanes). Stay tuned and it will come back in short order.

By: ARMchairQB

ARMchairQB — Wed, 03 Sep 2008 19:27:42 +0000

Correct me if I am wrong here, but my read is that those homeowners with recourse Option ARMs with accreting balances on their principal residence have a “get out of jail free” card courtesy of the H.R. 3648, the “Mortgage Forgiveness Debt Relief Act of 2007″ (assuming they walk away before the end of 2009.) Unless the Act is extended, we may see an acceleration of Option ARM forclosures at the end of 2009, at least for those loans which are recourse. Those with non-recourse Option ARMs have no incentive to walk away or default on their financially subsidized homes until the contractual payment reset in the loan is triggered. I do not think this is what legislators had in mind when they passed the ACT late last year. It would have made better sense to carve-out Option ARM loans outstanding beyond year-end 2008, or sooner, in order to eliminate this now glaring loophole.

By: peterb

peterb — Wed, 03 Sep 2008 19:20:11 +0000

Most sheeple have no idea what’s going on. I have well educated friends, attorneys, VP’s, etc…that are just now starting to wonder if we’re really in for a recession!!! When I bring up global recession and deflation on a global level, they just dont get it. Main stream media had been very successful at keeping most people very uniformed and misinformed! We’re headed towards a “cash only” society due to massive defaults and credit destruction in general. Imagine the price of things in the USA when there’s no credit available? This is happening fast. The old saying,”Cash in a crash” is really becoming reality.