It's certainly been an interesting week - there's a word used as a descriptor for those times when an entire industry decides to take its lumps in one quarter, in the hopes that will purge the bad once and for all. The word is escaping my usually quick mind as I write this, but that's clearly what's been taking place this week. Here's a look at some commentary and news from across the Web as we head into the weekend, so feel free to jump off wherever you feel like it: Getting social: You might notice a new badge on the sidebar that takes you to a newly-established LinkedIn profile for yours truly. Given that my other area of interest (outside of mortgage banking) is in social media, I decided I should bring some of that here to HW. Feel free to connect with me on LinkedIn and let's see what kind of network comes out of it .... after all, you do want to say you know one of the real estate industry's most influential bloggers, don't you? (Because many have asked: if you need an email address, use The Tragic Kingdom: I couldn't help but think of an old No Doubt album when I read Jon Lansner's post over the OC Register about how hard the central core of Orange County, Calif. -- once the center of the housing boom -- is being hit by a worsening housing slump. Lansner's got the goods on running data from DataQuick, which shows that for 22 business days ended Sept. 21 the mid-couty region endured a 60 percent drop in home sales. That's a region including Santa Ana, Orange, Westminster, Garden Grove and Anaheim -- home to Disneyland, otherwise known as the Magic Kingdom. More Merrill Lynch: Paul Muolo, in his weekly "What We're Hearing Column," visits a subject I'd blogged about way back when HW was just getting started -- about how Merrill was rumored to be the driving force in the early stages of the lending liquidity crisis by pulling out the stops to make margin calls:
Does anyone see the irony of Merrill Lynch — known for selling stocks to America's wealthy — trying to make a buck by lending to credit impaired Americans? Let's not forget that Merrill was a major (and I do mean major) warehouse financier of non-banks plying their trade in subprime, including Ownit Mortgage, Mortgage Lenders Network and ResMAE, among others. What do all these lenders have in common? They all filed for bankruptcy protection. Some in the industry even speculated that Merrill was engaged in a plan to reduce the number of subprime lenders so that FFFC would have less competition, a thought that only a conspiracy theorist would hatch. One subprime executive who sold loans to Merrill told me that Merrill "was one of the most aggressive buyers of loans. They paid more than anyone and they did less due diligence." He blamed Merrill's woes on a top trader there, whose identity I'll get to in a future column as I continue to research the roots of this crisis.
I posted the full quote because it will be gone in a week. Muolo doesn't get into another rumor that's been circulating that suggests Merrill may be looking to consolidate across its own various mortgage operations, similar to what we've already seen from other Wall Street players as they adjust to current market conditions. Certainly wouldn't be a surprise if that were the case. He's still selling: Countrywide CEO Angelo Mozilo, who has made a veritable fortune selling shares of his company this year, appears to be set to sell even more of whatever's left. According to a very unusual press release put out this evening by Countrywide, Mozilo will begin selling more shares again next week pursuant to a 10b5-1 trading plan. (Hat tip, Morgan Brown). In its coverage, the LA Times notes that there is apparently some unusual activity surrounding Mozilo's 10b5-1:
... most executives adopt a plan and stick with it, compensation and securities experts say. Mozilo didn't. Instead, he shifted course twice in late 2006 and early 2007, according to regulatory filings, amid mounting signs of trouble in the housing and mortgage industries. Mozilo adopted a new trading plan, added a second and then revised it, allowing him to unload hundreds of thousands of additional shares before Countrywide stock went into a tailspin. "There is clearly no legal prohibition of altering your plan," said David Priebe, a Bay Area attorney who has helped set up more than 50 of such plans for executives. "But the more that you modify or add to your plan over a short period of time, the more risk that someone will call it into question. I would not say that you cannot do it. I would say there is a risk if you do do it."
Ranieri on housing: A great story appeared in Investment Dealer's Digest that interviewed iconic Lew Ranieri on a wide range of subjects, including his latest media/mortgage venture designed to bypass brokers -- as well as his take on the mortgage market and housing. Some tidbits:
"Leverage was always a two-edged sword. Everybody was so busy talking about the benefits of leverage [that] nobody wanted to talk about the downside of leverage," says Ranieri. "Leverage is OK when you have the financial wherewithal to delever when you have to. But if you don't have the financial wherewithal, you get your head cut off." This spring, Ranieri offered another warning that investors in the world's largest credit market probably should consider. The Root Markets chairman warned attendees at the annual Milken Institute conference that working out the loans bundled into mortgage-backed securities will be tricky because such a workout requires bringing in all the investors -- the bondholders -- into one room to agree to new loan terms. "Two years ago, I started saying there was a potential problem. There's a big hole in the fence. Everybody is running through that hole," Ranieri says. "The checks and balances were no longer working."
The rest of his interview is well-worth reading. For a great look at Ranieri's Roots Markets play, be sure to check out Rick Grant's latest post. Subprime traffic jam: The Financial Times took a look underneath the hood of the servicing industry and found that many are struggling to keep up with the volume of troubled borrowers:
“Servicers have failed because there's a huge resourcing issue,� said Barefoot Bankhead, managing director at Navigant Consulting. “As lenders have gone out of business, the servicing arms have been in transition without the resources to handle the enormous number of requests for loan modifications and restructuring.�
I'd add that the problem isn't just in loss mitigation; with defaults and REO volume soaring, servicers are struggling to find enough warm bodies to help manage everything related to distressed and non-performing loans. I wish I could share with you some of the numbers I've heard from contacts at Merrill, Bear Stearns and elsewhere -- you'd be floored if you knew where they expect defaults to head to by the end of this year. It's not over until it's over, and even then it's not over: Kevin Depew at Minyanville wrote a great story about something I've cautioned HW readers over more than a few times: we've got a ways to go just yet before we can start thinking about being out of the woods. Depew goes from "Whew! Crisis Averted Until the Next Thing" to "The Thing That Will Be the Next Thing After the Next Thing Finishes Being the Thing" in enumerating five things to know about the credit crisis. Debt in America: The folks at Housing Doom - by far, one of the better "bubble" blogs out there -- highlighted the documentary Maxed Out in a recent post. The movie shows first-hand just how debt-addicted many consumers have become. It's sobering when you consider where the credit markets appears to be heading, with most banks already hiking loss reserves for consumer credit. See you next week.