2008-10-06 — forbes.com
Sandler contends the troubles cropping up in World's option-ARM, or "pick-a-pay," portfolio haven't been severe enough to drag down Wachovia. The bank has charged off about $850 million of the $122 billion pick-a-pay portfolio so far, but the bank's management has indicated the losses could rise to $12 billion.
...
Sandler contends the loss projections are grossly exaggerated and rely on improbable Depression-era assumptions about the U.S. economy. He doubts the losses on World's former mortgage portfolio will rise above $10 billion, largely because none of the loans were made to borrowers with shoddy, or "subprime," credit records.
Sandler is still living in the fantasy-land of models that have been discredited since 2007. First of all, home price declines (even in California) have already topped "Depression-era" numbers. Nevermind assumptions.
Second, we now know that negative equity is the greatest factor in defaults and loan losses, not "how subprime" the loans were.
Finally, let's drop the "see no evil" crap: pay option loans take longer to default simply because payment shortfalls aren't considered "defaults" -- not until the neg-am ceiling is hit. Then the loans go bad real quick.
Wachovia (or whoever gets their portfolio) better hope that job loss and walkaways don't continue moving in the direction they seem to be moving.
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Comments:
bschoch at 13:48 2008-10-07 said:
World Savings was a leader in profitable lending. That's why their year-over-year return on investment was 20% for 3 decades running as Golden West. I wish I had owned their stock and sold at the top like the family did. It's not their fault Wachovia took it over and took it down. World Savings was conservative not carefree. They took the right risks and got rightly rewarded. Look at their track record for goodness sake. The mad, that is irrational, rush for market share and, how did they pull this off-selling subprime as AAA rated debt-malfeasance is what exacerbated the problem? How are all these companies getting away with crimes like fraud, misrepresentation, and breach of trust? And why are they being bought out with our money? How did that happen? Permalinkadd a comment | go to forum thread
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