Wall Street Hasn’t Given Up On Mortgages

The Wall Street Journal covers something regular HW readers already know; that some Wall Street firms are heading back to the well in terms of mortgages:

… Wall Street seems to believe there still is money in failed mortgages.

In fact, firms such as J.P. Morgan Chase and Bear Stearns are sidling back toward their subprime exes, looking to buy some assets on the cheap. Jamie Dimon wants to build J.P. Morgan’s mortgage bank and start buying up jumbo mortgage loans and subprime assets, which he thinks now compare favorably to their previous prices.

Bear Stearns believes there are numerous opportunities in acquiring distressed mortgage assets; in fact finance chief Sam Molinaro told Banc of America Securities analyst Michael Hecht that there are too many buyers and not enough sellers of such assets.

At the end of 2007, Lehman Brothers Holdings, which was relatively unscathed by subprime, had more mortgage exposure than it did the year before: $37.3 billion compared with $27.5 billion in 2006.

HW reported last week that former subprime giant Accredited Home Lenders was busy originating a new book of subprime business in the hopes of testing out the securitization waters later this year.

More than a few sources are also suggesting to start this week that Chase has snapped up warehouse execs from places like WaMu, and that the firm is planning to enter warehouse lending in a big way. (No formal announcement has been made by Chase on the matter.)

And, of course, there was infamous investor John Devaney, too — who sponsored a lavish dinner bash at ASF 2008 last week — telling attendees at the Vegas conference that the time to go long on mortgages was now.

Only time will tell if the emerging “value” sentiment is correct or not. Current market signals, of course, don’t seem to suggest such a turn by any stretch of the imagination.

But it’s not as if anyone is really claiming a possible return to the glory days for Wall Street here, either; if anything, the posturing out there now feels more like a proclamation of commitment more than anything else — sort of the we’re not giving up on this industry sort of pep-talk. (It’s worth noting, however, that the same firms often ruminating on opportunities are often the same ones ’short’ on mortgages in a big way).

The reason is simple: money.

“There is, long term, simply too much money to be made in the mortgage business,” said one source, who asked not to be named. “Will things be the same? Of course not — but Wall Street isn’t going to let a great source of revenue just walk out the door.”