Silence Speaks Volumes on Bailout Efforts

Finally we are seeing solutions on the overhang of failed bank assets. The deal is a new hybrid to the market, though media outlets are calling it different names. In some sense it is similar to a covered bond, in that the government is insuring the loan pay out. However, the originator obviously failed, so it’s not exactly dual recourse. The collateral is also a mixed-bag of residential and commercial loans (likely mortgages), with some construction loans, and judging by the three-pronged approach the arranger is using to determine the weighted-average-life (using default rates, prepayments, lose severity) the assets are considerably high-seasoned. Right? Getting the necessary information, however, is like pulling teeth. As it turns out, the dual argument that the public has a right to know and we have a right to tell the public, doesn’t really fly well. We knew long ago Barclays Capital was arranging the deal, and we also have a good idea of where the assets are coming from. However, as we’re told client interest must be protected, we are consistently being left out in the cold. Which, I suppose is understandable as the American government is helping to keep more and more of its citizens out of the cold as well. This comes on the heels of a terrible winter, which negatively impacted the residential mortgage market. Friday’s unemployment numbers will likely show that things are still far from worked out, and the administration will probably mutter that the winter had something to do with that as well. Another recent article I wrote on the likelihood that house prices will not appreciate any time soon, in a sign of recovery, drew more than a little fierce criticism from readers. One reader, who called the article a “mass of contradictions” declared that his friend was about to strategically default on his home based on stagnant prices as “the prospect of his current residence coming back in value to what he paid for it has about as much chance as a snowball in the innermost ring of the hottest fires of hell.” Oddly, the homeowner is a Home Affordable Modification Program (HAMP) “success story” as it turns out: “I can tell you my friend’s modification is considered ‘permanent’ in the current environment, but he’s going to walk away from his property. The reason is simple, he can rent a nearly equivalent apartment for half of his modified mortgage, in a much nicer neighborhood with better schools for his young children.” It’s no wonder that in this environment the government wants to keep its affairs quiet. But at what point will that prevent recovery and create long-term damage on the industry in general? Even simple tasks, such as a request from this news room to get a list of every firm eligible to participate in Term Asset-Backed Loan Facility (TALF) was denied by the Federal Reserve Bank of New York. However, at some point, the guesswork needs to end. Too Big to Fail firms can not continue to keep getting bigger. At some point small players need to become mid-sized players and Zombie banks brought back to health. In the short term, we can expect a heavy government hand in everything we do in mortgage finance, as the current administration gilds it’s way forward with tax revenues. At some point, somewhere, someone is going to start talking. And we will be ready to listen.

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