Posted on 08/21/2007 6:43:21 AM PDT by Hydroshock
NEW YORK (Fortune) -- Capital One's shuttered GreenPoint Mortgage is the latest mortgage banking explosion to bump Wall Street's panic meter up a notch, and industry insiders say it is just another indicator that retail banks will be stung by the credit mess they helped create.
"Banks are not going to want to be in the mortgage business after all this is over," says Richard Wilkes, a mortgage industry veteran who ran First Nationwide Mortgage before it became a part of Citigroup.
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"It happened to the insurance companies in the 1980s when players like Travelers and Prudential owned mortgage banking operations. They just couldn't stand the cyclicality and the banks won't be able to either."
But big names in retail banking like Capital One have become deeply entwined in the mortgage lending industry, particularly at the beginning of the decade. Loan originators made boatloads of cash selling mortgages to investment banks that turned them into the asset-backed bonds.
The game ended when the mortgage-backed bonds turned out to be toxic waste for investors, and high-profile write-downs on their value sparked the credit crunch that is strangling the markets. However, it won't be so easy for banks to get out of mortgage lending altogether.
(Excerpt) Read more at money.cnn.com ...
One falls...another one rises. It’s how it works.
Banks are not going to want to be in the mortgage business with 0% down negative amortization loans to people who can't provide paystubs on houses with fictional appraisals.
Maybe we'll get back to sanity with 10% or 20% down on mortgages with required principal payments.
Somewhere I heard rumblings about something Bill Clinton did in 1996 that directly effects the Sub Prime fiasco of today, yet I read nothing about what he allegedly did.
I don’t generally follow these situations as it isn’t my expertise (eyes glaze over), but I remember what I read, so if anybody can enlighten, it would be appreciated.
When my mortgage got sold twice to two different banks within the two months after closing, somehow my escrow disappeared. What happened was they used it as a payment during the time when the loan was sold. (I had sent a payment to the first lender as I hadn’t received the notice it was sold AGAIN yet.) So, imagine my joy a few months later when I found out that my property taxes weren’t paid! So after much nagging, I got the bank to pay them because they are responsible for the payment. But now I have been paying almost double in escrow payments because someone screwed up! What got me mad wasn’t so much that they screwed up but that no one would tell me where the $1600 went! I could have just bit the bullet and made the tax payment myself and not dealt with the bank at all... but they had to stretch it out almost two years!
I think the banks deserve to go under.
20 months ago I took out my 30 year fixed. I worked with my bank, I had a big down payment to avoid PMI, and I did a lot of work to get what I wanted. Meanwhile a pair of idiots I am unfortunate to know called the 800 number on a TV ad, got a loan, and called me an idiot for putting anything down since there where so many ways to make money in real estate with no money down. No these idiots are in a crunch and are positive the congress will bail them out. Maybe I am the idiot for trying to do the right thing.
A friend of mine is working there. He said all e-mail has a Cap One prefix, but since computers don’t like spaces, it’s spelled out Capone. Ironical ain’t it?
He is incorrect. Maybe banks who are not doing a good job will choose to not be in the business.
Banks with well run, adequately capitalized mortgage operations will do fine.
The lenders who have been diligent with their underwriting and product offerings are seeing that pay off right now.
S&P, Moody’s, etc., are probably more responsible for this mess than banks. These ratings agencies blessed packages of sub prime and sub prime refi’s like they were government bonds.
This is exactly the kind of bank I love to do business with.
LOL as a Chicagoan, I find that doubly funny :)
I don’t think there was a huge amount of fraud, but as in any situation, some bad apples were doing some bad things.
How many of these houses that were foreclosed on have multiple mortgages in different states that the borrowers have skipped out on? I know of one.
I think after all these companies like Capital One go down.. we’ll see a return of the big mega banks in the mortgage business. They got chased out from the absurdly low risk premiums, they could just not compete, and its a good thing they didn’t.
But when they get back in the game, stepping over the carcasses of all tehse failed guys.. it will be 10 or 20% down like you said.. and a big fat spread, especially at first. Plus actual verification of income, credit history etc.. So a 7% mortgage might become an 8.5-9.5% mortgage.
and in a vain attempt to ‘cover’ their losses, CapOne changed their fixed interest rates (8.9%) on there long time excellent credit score ccard members to a variable starting at 13.9% (only one late in 18 years - forgot to mail it). I paid the balance off immediately and closed the account.
I despise Capital One for a few reasons:
- they clog my mailbox twice a week with credit card applications
- in their commercials, the white guy is always the stupid guy OR a group of white people (Vikings, Island Cannibals, etc.) are always the ones persecuting the credit card holder. I didn’t realize there were white cannibals with bones through their noses.
I keep wondereing where all the sad sack stories are. I have a feeling that this has affected speculators the most.
“How many of these houses that were foreclosed on have multiple mortgages in different states that the borrowers have skipped out on? I know of one.”
I would guess the number is very small. I’m sure some nasty things have happened but the overall cases are relatively small.
The lck of available credit will be a much bigger factor
Sadly, you may be right... and it's not just in housing. Look at immigration... look at the prevaence of cheating in high school and college... it's becoming more advantageous to break the rules, especially since liberals are eager to defend every rule-breaker and give them perks. The benefits are no longer outweighed by the risks in many areas of life.
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