The fact that the Fed left the Prime Rate unchanged speaks volumes. Those wishing/needing to refinance are going to feel the full effect of the housing bust. I do not know the paper value of the total mortgages sold to WS, but their paper value is less than the stated value of comps.
As housing continues to slide, the effect on WS will be the same as in the 30s where credit was being used to finance deals. When credit tightens up, those holding worthless or less than face value contracts will be left out in the cold. It will be interesting if these holders call on the mortgage to be paid, if it can be legally done.
This has huge implications on our economy. Consumers are so much in debt, they have extracted “equity” from their homes to have fun. Using your home as a credit card to buy cars, clothes, boats, and other big ticket items is just plain stupid.
They can't. The holders face two risks - refinance if rates drop, and default, no matter what the rates do. Indeed, it is fairly rare for a lender to actually hold the whole mortgage. Loans are generally packaged and securitied.