(The below is from an HW reader, now a VP at a bank in the Southeast, in response to our look at option ARM exposure at First Fed on Tuesday. He's graciously given us permission to use his comments -- and I think they're telling of industry sentiment right about now.)
Anyone who could not see this one coming is blind. In 2005 New Century Financial purchased my employer, RBC Mortgage, from RBC. In February of 2007 that house of cards collapsed in 28 days. I began to research why. What I learned guided my path going forward.
My immediate boss at that time was geared up to take the rest of her crew and move to American Home Mortgage. Seeing that their servicing portfolio was 80+% Option ARMS I advised against the move. She followed my advise and thanked me profusely less than 6 months later when AHM bit the dust.
If a simple loan originator can see the forest through the trees I am sure those securitizing these loans, packaging them and selling them could also. The applicants who signed on for these mortgages should not be bailed out and given modifications unless the servicer elects to do that for their own benefit. Those of us who have been paying the true cost of owning our homes should not have to pay for those who have been living in a subsidized wet dream thinking they could afford something that was beyond their means.
Let the loans and the lenders who made them fail. Let the borrowers who lied about their income crash and burn. We have lots of cardboard appliance boxes they can cover with plastic and live in this winter. Let those who bought and sold these securities lose their investment and leave the rest of us alone. We should not be asked to pay for it.
We as a bank are suffering through the pain of selling the properties we are taking back. We are taking those losses and no one is bailing us out. We made the loans and will suffer the consequences. For the loans we originated and sold there is 100% recourse for fraud and we know that so we carefully document each application. I have not, however, seen a single story about recourse being enforced by the wholesale lenders against their brokers. They should be happening in a major way.
Punishment can prevent this from happening again. Bailouts will insure that we will return to the edge of this abyss in the future. Fine them, put them in jail, hang 'em from the highest tree in effigy but don't reward them with a bailout. The mortgage industry is to blame for destroying our financial system worldwide.
The efforts to fix the system are under way but if we do not punish those who caused this mess they will return to do it again.
I really appreciate the approach I see HW taking in most published articles. You put the information out there and give analysis but always link back to the raw data which helps me to form my own conclusions. HW is one of the most valuable sources of information for our industry since it includes the good, the bad and the ugly.
(We really appreciate that last paragraph! -- Ed.)