The Mortgage Secondary shop As a Indicator of the health of the cheaper
A very subtle thing happened the other day, Bank of America refused to buy back billions of dollars of non-performing mortgages.
The Mortgage Secondary shop As a Indicator of the health of the cheaper
The funny thing is that Bank of America finds itself in the same place as thousands of small and mid-sized mortgage bankers who found themselves in similar positions and are now out of business. Twenty-four months ago, investors, mortgage assurance fellowships and bigger mortgage banks hired all the recently unemployed underwriters with directions to find "fraud" in the files, thus deny coverage and force the sellers to repurchase the loans under their reps and warranties of the contract. The attempts to find fraud were thinly veiled attempts to point the finger at some one else and escape liability.
This brings to mind one of my popular scenes in Casablanca - Captain Renault, played by Claude Rains, tells Rick, played by the great Humphrey Bogart, that he is shocked to find gambling in his café. No sooner has he concluded the sentence when a waiter approaches Captain Renault with a wad of cash and tells him, "Your winning Sir."
That phrase sums up the action of all of these mortgage players, investors, bankers, the government, mortgage insurers and bond rating agencies. They all knew about stated earnings loans; they all knew about the substandard documentation; they new about inflated appraisals. What these players won't tell you is that they needed the contribute of new mortgages to keep coming, just like a junkie needs a new fix. The steady contribute of new mortgages allowed all of these fellowships to book record profits. Now it's a race to see who can stand up to the others.
It's legitimately funny to see the rush to judgment by all these players, trying to stay one step ahead of the others. The bigger point here is the secondary market is nowhere near healed. This means that interest rates could go to zero, and lending would still not loosen up. Understand that the economy has many issues, jobs being estimate one. But if lending guidelines don't ease, the economy will not improve, jobs will not be created, tax revenues continue to decrease and we're in a death spiral that means greater job loss and pain.
What the government gives, they also take away. Ask any small business man about the case of "red-ass" their local bank is giving them on inventory and real estate loans. The administration talks out of both side of their mouth on this issue. Small business doesn't have the resources to fight back. Bank of America is another story.
I'm not a big fan of Bank of America, but I find myself rooting for them on this issue. The fight may be engaging to watch, but it's the condition of the secondary market that's more important here. This is a fight worth keeping an eye on, as much as the estimate of jobs created.
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