Comments on: Lenders Clearing Deck To Blink, Uh, Lend — What Will They Think of Next?

By: BawldGuy

BawldGuy — Fri, 07 Dec 2007 02:14:15 +0000

Hey Michael — I was never referring to those who’ve gone for the jugular, i.e. buying loans at discounts. I mentioned them, as I think it’s a fairly smart play now, or at least could be.

The lawyers are gonna look at this like their momma just gave them $100 and showed them the entrance to the candy store.

I’ve not said, or at least didn’t ever mean to imply the whole CDO thing was gonna be easy.

That said, it’s still a matter of lenders’ perception of what’s best for them and what’s to avoid PR-wise, and staying away from the government’s implied hammer.

If prices do crash, I’m with you — buying everything I can.

I agree with all tranches getting less. Still, I know how lenders view massive foreclosures. Most of them would rather do just about anything else.

By: Michael Cook

Michael Cook — Thu, 06 Dec 2007 23:49:39 +0000

First,

“Or, and this is one of my all time favs — “What are you going to do when the defaults and foreclosures start hitting the fan, and housing prices fall 60-80%?” ”

I would mortgage everything including my own parents house and buy any and everything I could get my hands on.

Second,

I dont think the CDO issue is easy to deal with as you suggest. First, investors have lots of recourse in these situation. Additionally, some people buy these instruments specifically to foreclose. They also could consider sueing. Your argument for a little bit vs. nothing is not quite correct.

The way the tranching system works, typically means all or nothing. If you are in the lowest tranche you are the first person to get nothing in the event of default, then the next lowest, etc. As defaults rise more and more tranches get nothing. As the likelihood of getting nothing increases, the price drops.

The problem here is that all tranches get less by keeping the interest rate lower. If I am in the highest tranche (first and most likely to get paid), I now get less than I would have because of this contract change. Additionally, I had a high likelihood of getting all of my return regardless. Its these guys that have cause and reason to sue. If I have a $1 Billion of good CDO paper, it may drop in price, but I still have my interest. A dip of 3-4% on $1 Billion is not a game. In this case you lose both your appreciation and your interest.

On the other hand it would be very tough for a big name company to sue because of the horrible press it would generate. Sueing to foreclose on Joe American is not the kind of press the big guys want, so that may be enough to keep them quiet. Additionally, I am sure the government has had many close door come to Jesus meetings with these guys to ensure their cooperation. Still, you never know.

Its an interesting problem, but I do not think this will be the end of this by any means. I am sure there will be some lawsuits and I am sure the scale of these bailouts will be muted by the investors stick. Whether they use it or not is a different matter.

By: The Odysseus Medal competition — Voting for the People’s Choice Award is open | BloodhoundBlog: Real estate marketing and technology blog | Realtors and real estate, mortgages, lending, investments

Sun, 02 Dec 2007 22:46:50 +0000

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By: Robert Coté

Robert Coté — Sun, 02 Dec 2007 21:41:15 +0000

“So Robert — You’re an investor with $10 Million in sub-prime loans, all of which are gonna adjust next year. Your lawyer tells you to veto this impending agreement, and hang tough.”

No, the investors with $10m start excersizing all the funny page 49 paragraph 123 provisions about cram back, fraud, due diligence and then after they extract their pound of flesh they do the very worst thing; they stop lending. Once bitten, twice shy The people who invest thus giving lenders the wherewithall to lend are not going to accept modifications except as a last resort and they are not going to take the lender’s word for it. There all kinds of investor protections that will get exausted before they resort to mods. Lenders may want to continue lending, it’s what they do as you correctly note but they won’t be able to lend again until they satisfy the investors. And even at that lenders have stopped all kinds of lending. Seen the rate sheets lately? Seen people at brokers forums being openly laughed at trying to place terms that 6 months ago would have been routine? Do you know anybody not under 72hr observation willing to fund just the 20 in an 80/20 in San Diego? We need to be ready for a different lending/borrowing environment.

By: Lenders Lend — Are You a Believer Yet? — Altered Circumstances Changes Behavior | BloodhoundBlog: Real estate marketing and technology blog | Realtors and real estate, mortgages, lending, investments

Sun, 02 Dec 2007 07:14:14 +0000

[...] Many other Wall Streeters will be elated by this news. The Bulls for instance. In fact, it may be this agreement that acts as the final straw for beleaguered Bears. They may now throw in the towel, or as I said here, finally blink. [...]

By: Jeff Brown

Jeff Brown — Sun, 02 Dec 2007 03:38:16 +0000

Cher — Your situation is so exactly on point. THANKS

It reminds me of the old saying about being right — dead right.

Those who don’t understand being right isn’t always profitable, usually end up doing the math after the fact. Doh! 100% of nothing IS nothing.

By: Cher

Cher — Sun, 02 Dec 2007 03:28:33 +0000

Jeff, “I’m biting the bullet and taking a lesser percentage of something vs. 100% of nothing”
That statement is SO true!
Here is an example of how this works: We are involved in an LLC with hard money loans. Many loans are performing as usual. But because of some forclosures and losses on REO’s, all of us have agreed to take a lower cash flow per month. We are all “feeling the pain” together. No suits because the lender, mortgagees and investors are all working together to work through the problems.
Our IRR has gone from 11% to 9%. Our checks are lower but not by much. It’s better than a CD.
Hopefully this is how other investors will get through this period. Investors must understand that taking a little less is part of good business practices. As a Landlord, I have lowered cash flow when tenants “default” (evicted)
I wish people would keep their heads during these down times.
I predict that there will be a few who sue and the media will hype that. What’s new?

By: Jeff Brown

Jeff Brown — Sat, 01 Dec 2007 23:42:32 +0000

So Robert — You’re an investor with $10 Million in sub-prime loans, all of which are gonna adjust next year. Your lawyer tells you to veto this impending agreement, and hang tough.

Do you risk the foreclosure losses of interest and principal? Or do you tell him to go back to sixth grade math, protect your principal, and deal with reality?

Me? I’m biting the bullet and taking a lesser percentage of something vs. 100% of nothing.

By: Robert Coté

Robert Coté — Sat, 01 Dec 2007 21:05:57 +0000

Agreeing: Don’t forget NegAm loans have been “paying” theoretical interest. When they fail the lenders will have to go back to the start of the loan and back out earnings they’ve been reporting sometimes for years.

Disagreeing: The problem with your investors sitting still for modifications are these things called lawyers.