Home HomeWyckoff, Richard D The Day Trader's Bible Or My Secret In Day Trading Of StocksDonald R. Wehrs Pre Colonial Africa in Colonial African Narratives (2008)Richard Brent Turner Jazz Religion, the Second Line, and Black New Orleans (2009)Richard A. Spears McGraw Hill's Super Mini American Idioms Dictionary,2 Ed (2006)Richard A. Iley Untangling the US Deficit, Evaluating Causes, Cures and Global Imbalances (2007)Weiss, Richard Recipes for Immortality Healing Religion and Community in South IndiaRichard S Weiss Recipes for Immortality Healing, Religion, and Community in South IndiaPeter Richardson American Prophet, The Life and Work of Carey McWilliams (2005)Graham Heather Szmaragdowy aniol 02(1)Jeter K W Mandalorianska zbroja(GW)
 

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.Our conversations bordered on nonsensical as we listened to themjustify why Landsafe s opinion was not acceptable to them, eventhough they owned the company.The justification they used wasthat Landsafe s value only applied to the front end of their business.Tying the use of Landsafe s appraisal services to Countrywide score business paid enormous dividends.They not only made moneyoff the appraisal fee income, they bought more loans from lendersas a result of the tie-in.For Kellner, purchasing a Landsafe appraisalreview was like buying an insurance policy that only paid when itserved Countrywide s financial interest.Once the loan became a li-ability, Landsafe went from being a member of the Countrywidefamily to being the redheaded stepchild.By accepting the BPO instead of Landsafe s opinion, Country-wide sent the message that Landsafe was wrong.If this happenedonce, twice, or even a few times, I d chalk it up to an overzealousappraiser.But since the property value for every repurchase requestwas dramatically reduced, there are only three possible conclusions.First, every Landsafe appraiser was incompetent, which seems un-likely since all of them were licensed professionals.Second, Coun-trywide influenced the appraisers conducting the BPOs to produceoverly conservative estimates in order to reduce their losses.This is ccc_bitner_073_102_c04.qxd:ccc_bitner_c04_073_102.qxd 5/29/08 1:42 PM Page 101Laying the Blame 101possible but also unlikely since these appraisers worked independentof Countrywide.Third, Countrywide encouraged Landsafe apprais-ers to validate excessive property values.To an outsider, the last option might not make any sense.Whywould any lender, let alone the largest mortgage company in theUnited States, implement such a practice? Since all lenders have afinancial interest in the loan s performance, endorsing excessiveproperty values is tantamount to playing with fire.If you understand how the process worked, however, the logicbehind the practice becomes clear.Even if a property was overval-ued, there was no immediate concern to Countrywide as long asthe loan paid on time.Once a loan became delinquent, Country-wide s QC department tore it apart looking for any reason a lendershould be required to repurchase the mortgage.Of course, just be-cause a loan was delinquent didn t mean it would become a repur-chase, but many of them did.Once a repurchase request wastriggered, the loss ultimately moved from Countrywide s balancesheet to another lender.If Landsafe endorsed overvalued appraisals on the front side, itdrove more business, which created more profit.Disregarding Land-safe s opinion on the backside enabled them to minimize some ofthe losses.The strategy worked well as long as the status quo didn tchange.When the meltdown that became the mortgage Armaged-don of 2007 didn t leave any subprime lenders to absorb the losses,Countrywide was left holding the bag.The important question is just how much the issue of overvaluedappraisals will impact Countrywide over the next few years.If myexperience in any way resembles the standards used by Landsafe inCountrywide s other divisions, the next 12 to 24 months will proveto be painful for America s #1 home loan lender.It also means thattheir projected return to profitability in 2008 will be nothing shortof fantasy. ccc_bitner_073_102_c04.qxd:ccc_bitner_c04_073_102.qxd 5/29/08 1:42 PM Page 102 ccc_bitner_103_126_c05.qxd:ccc_bitner_c05_103_126.qxd 5/29/08 1:43 PM Page 103CHAP TE R5Wall Street and theRating Agencies:Greed at Its Worst ccc_bitner_103_126_c05.qxd:ccc_bitner_c05_103_126.qxd 5/29/08 1:43 PM Page 104 ccc_bitner_103_126_c05.qxd:ccc_bitner_c05_103_126.qxd 5/29/08 1:43 PM Page 105ntil now, we ve focused on the front end of the business bydiscussing the people who made the loans and the tacticsUthey used to qualify challenging borrowers.Let s shift our at-tention to the back side of the industry and what happens to amortgage once it has closed and funded.We ll examine how mort-gage securitization works and analyze the Wall Street investmentfirms that drove the process as well as the agencies that rated thesecurities.These participants, in my opinion, share the greatestblame for the current housing fiasco.A lender s ability to function depends on the existence of a sec-ondary market.While banks and large financial institutions havesufficient capital to fund and hold mortgages in portfolio, mostlenders don t have that capability.A secondary market provides anoutlet for lenders to sell mortgages, pay off their warehouse lines ofcredit, make a profit, and start the process over again.Without it,105 ccc_bitner_103_126_c05.qxd:ccc_bitner_c05_103_126.qxd 5/29/08 1:43 PM Page 106106 Wall Street and the Rating Agencies: Greed at Its Worstonly the most highly capitalized companies could operate as mort-gage lenders.Our examination of the mortgage securitization process, the in-vestment firms, and the rating agencies will lead to some troublingconclusions." The relationship between the investment firms and ratingagencies was fundamentally flawed, which compromised therating process." Investors who purchased these mortgage-backed securities be-lieved they were investment grade, when in fact the risk wasmuch greater." Since the secondary market dictated the products lenderscould offer, investment firms and rating agencies became theunofficial regulators of the subprime industry." The securitization market transformed the U.S.mortgage mar-ket, in some ways to the detriment of the consumer.The Impact of SecuritizationSecuritization could be the single greatest innovation in mortgagelending.Before loans were securitized, a consumer relied on a bankto supply the money to fund a mortgage.The entire process, fromorigination to servicing, stayed with the same institution.Sincebanks owned every aspect of the loan and were heavily regulated,they were motivated to manage risk and treat borrowers fairly.If aconsumer got into financial trouble because of something like lay-offs at a local factory, the local bank often knew about it before itbecame an issue.Owning the entire process gave banks the lati-tude to restructure the loan.You ll see later in this chapter howsecuritization negatively impacts a borrower s ability to modify hismortgage.In addition to creating a renewable source of capital, mortgagesecuritization helped fragment the industry.A broker originated a ccc_bitner_103_126_c05.qxd:ccc_bitner_c05_103_126.qxd 5/29/08 1:43 PM Page 107Understanding Mortgage-Backed Securities 107loan while a mortgage lender funded it.The lender either sold theloan to another financial institution that held it in portfolio or usedan investment bank to package it into a mortgage-backed security.A myriad of investors, ranging from banks to hedge funds, boughtthe investments for their portfolio.A servicing company collectedpayments, and when a loan defaulted, foreclosed on the property.The entire process originally performed by one entity was dividedinto five separate components.This fragmentation gave each player a claim of plausible denia-bility.Mortgage brokers maintained that they only originated theloan, so any concerns about the loan s quality were the lender s re-sponsibility.The lender underwrote the deal using the guidelinesprovided by the investment firms, so they merely delivered the finalproduct investors wanted to buy [ Pobierz całość w formacie PDF ]