Yesterday I received a call from a friend on Wall Street who sat on a conference call announcing a major change from Wamu, advising its withdrawal from the wholesale side of the mortgage lending world.
That’s to be expected, given the recent pressures in the lending industry, specifically as the mortgage broker becomes more irrelevant each waking day.
The big surprise comes from the fact that Wamu has chosen to shut down its entire retail lending operation. Of course, you could stop at a branch and have a 19-year-old open a checking account, help you with your safety deposit box and write a mortgage while he or she is at it (presuming the teen knows how to spell “mortgage”).
Seriously, this announcement–effective immediately–essentially puts a nail in the coffin representing the riskiest mortgage program in America. For the investor community, the program generated tremendous cash flow and investment opportunities for those who understood its complexity. For the everyday homeowner, it was used as a way of stretching the affordability factor, and now it’s gone.
We suspect the elimination of the program will allow for greater stability in the mortgage markets, resulting in a flight to quality for many consumers who, blessed with an ounce of equity, will be able to refinance into more favorable terms in a more conservative, 30-year-fixed program.
I further suspect in the short term that those who became accustomed to $1,400 payments on a $450,000 mortgage will simply walk away, realizing that the ability to refinance will still result in an increased payment compared with the deferred payment that failed to cover the minimum interest payments.
I’m interested to see what impact that will have on lenders such as Wamu that control a huge portfolio of those toxic loans.
Great time to buy from a value perspective, but I feel for any borrower who lives close to one of these homes that has become a ticking time bomb. Of course, I feel even worse for the employees at Wamu who just had their legs kicked out from underneath them because their CEO failed to plan ahead.
Bill Nazur
This entry was posted on Tuesday, April 8th, 2008 at 11:21 pm and is filed under Investing, Looking Ahead, Interest Rates, Foreclosure, mortgage, mortgage brokers, refinance, prediction, economy, buy a home, buying a home, foreclosure rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
