{"id":1667,"date":"2007-07-16T23:04:49","date_gmt":"2007-07-17T06:04:49","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1667"},"modified":"2008-01-08T20:34:35","modified_gmt":"2008-01-09T03:34:35","slug":"the-800-pound-gorilla-in-the-corner-the-meltdown-of-the-wall-street-mortgage-market","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1667\/the-800-pound-gorilla-in-the-corner-the-meltdown-of-the-wall-street-mortgage-market\/","title":{"rendered":"The 800 pound gorilla in the corner &#8211; the meltdown of the Wall Street mortgage market"},"content":{"rendered":"<p>As we go about our daily lives in the mortgage and real estate world; dutifully performing our job functions and taking the high road of customer enlightenment via blogs such as Bloodhound; we are faced with a very large gorilla looming in the corner of our workplace.  That gorilla is the amazing meltdown of the Wall Street mortgage market and its subsequent impact on the future of housing.  If you&#8217;ve been following the financial news lately you&#8217;ve noticed that <a href=\"http:\/\/www.bloomberg.com\/apps\/news?pid=20601087&amp;sid=akelO4PqGUco&amp;refer=home\">the indexes that track the collateralized debt obligations<\/a> (CDOs) &#8211; Wall Street&#8217;s favorite securitization method for subprime and other mortgage debt &#8211; <a href=\"http:\/\/www.bloomberg.com\/apps\/news?pid=20601087&amp;sid=akelO4PqGUco&amp;refer=home\">have taken a severe beating<\/a>.<\/p>\n<p>The reasons are many and the events of the recent weeks impact everyone tied to the mortgage industry and economy at large.  Some of the major recent events that have changed the rules of the game we are playing:<\/p>\n<ul>\n<li>Wall Street rating agencies like Moody&#8217;s, Standard &amp; Poors and Fitch have <a href=\"http:\/\/www.marketwatch.com\/News\/Story\/sp-may-downgrade-12-bln\/story.aspx?guid=%7BCB3BF07B%2DBCAA%2D4F55%2DAEF5%2DF9C22E5D4570%7D\">changed the way subprime debt is valued<\/a>; essentially emasculating large portfolios of CDOs made up of subprime mortgages<\/li>\n<li>The complete under-performance of these CDOs as <a href=\"http:\/\/www.realtytrac.com\/gateway_co.asp?accnt=64953&amp;ItemID=2823\">mortgage delinquencies continue to rise<\/a> resulting in a liquidity and credit crunch at the investor securitization and investment bank levels<\/li>\n<li>The elimination of mortgage programs as securities become illiquid and unsellable to Wall Street<\/li>\n<li>The <a href=\"http:\/\/countrywide-foreclosures.blogspot.com\/2007\/07\/countrywide-financial-9660-homes.html\">escalation of foreclosure properties<\/a> and borrowers attempting short sales that are degrading mortgage pools even further<\/li>\n<\/ul>\n<p>Let&#8217;s take a look at today&#8217;s events just as an example.  <a href=\"http:\/\/mortgage.freedomblogging.com\/2007\/07\/16\/option-one-scraps-popular-subprime-228-loan\/\">Option One announced that they are no longer offering the 2-year fixed adjustable rate mortgage<\/a>.  Commonly referred to as a 2\/28 mortgage this product was wildly popular during the recent credit boom.  It offers a low &#8220;teaser&#8221; rate for the first two years before adjusting to a much higher &#8220;fully-indexed&#8221; payment.  These loans, issued in trillions of dollars during 2000-2006 are resetting in record numbers to ever-higher interest rates.  Many point to the 2\/28 reset as one of the primary causes of mortgage default, foreclosure and &#8211; ultimately for Wall Street &#8211; poor security performance.<\/p>\n<p>Why did Option One eliminate the 2\/28?  Simple.  Profitability. <a href=\"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1667\/the-800-pound-gorilla-in-the-corner-the-meltdown-of-the-wall-street-mortgage-market\/#more-1667\" class=\"more-link\">Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As we go about our daily lives in the mortgage and real estate world; dutifully performing our job functions and taking the high road of customer enlightenment via blogs such as Bloodhound; we are faced with a very large gorilla looming in the corner of our workplace. That gorilla is the amazing meltdown of the [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[26],"tags":[],"class_list":{"0":"post-1667","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-lending","8":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":4789,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4789\/deregulation-is-the-new-regulation\/","url_meta":{"origin":1667,"position":0},"title":"Deregulation is the New Regulation","author":"Brian Brady","date":"October 2, 2008","format":false,"excerpt":"From the Wayback Vault in The New York Times Building: Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in\u2026","rel":"","context":"In &quot;Real Estate&quot;","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1250,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1250\/a-farewell-to-arms-one-less-option\/","url_meta":{"origin":1667,"position":1},"title":"A Farewell to ARMs:  One Less Option","author":"Brian Brady","date":"April 1, 2007","format":false,"excerpt":"Are Option ARMs the next casualty in the non prime mortgage meltdown war? Wall Street fired the shot heard 'round the world in the mortgage default war by demanding repurchases from subprime lenders. Lenders either closed their doors or waved the white flag and allowed the conquering army to annex\u2026","rel":"","context":"In &quot;Real Estate&quot;","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1786,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1786\/how-big-is-the-sub-prime-mortgage-market-not-very-big-at-all\/","url_meta":{"origin":1667,"position":2},"title":"How Big Is the Sub-Prime Mortgage Market? Not very big at all","author":"Greg Swann","date":"August 10, 2007","format":false,"excerpt":"Cited by BusinessWeek Online, a very eye-opening analysis of the sub-prime mess from National Review Online:I\u2019ve thought a lot about Rain Man over the past few months as I\u2019ve been following the press coverage of the sub-prime mortgage crisis. The story\u2019s been on the front page of the Wall Street\u2026","rel":"","context":"In &quot;Lending&quot;","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4588,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4588\/wall-street-bailout-plan-to-include-more-than-bad-mortgage-debt-feds-to-absorb-unpaid-bar-bets-inadvertently-laundered-postage-stamps-unredeemed-soda-cans-and-insufficient-tooth-fairy-disbursements\/","url_meta":{"origin":1667,"position":3},"title":"Wall Street bailout plan to include more than bad mortgage debt: Feds to absorb unpaid bar bets, inadvertently laundered postage stamps, unredeemed soda cans and insufficient tooth-fairy disbursements","author":"Greg Swann","date":"September 22, 2008","format":false,"excerpt":"Totally absurd? Think twice:In the dark of night over the weekend when most people were snoozing, the Treasury dramatically expanded its bailout plan to include buying student loans, car loans, credit card debt and any other \"troubled\" assets held by banks. The changes, which were included in draft language that\u2026","rel":"","context":"In &quot;Group Therapy&quot;","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":3447,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/3447\/moral-hazard\/","url_meta":{"origin":1667,"position":4},"title":"Moral Hazard&#8230;.","author":"Tom Vanderwell","date":"July 22, 2008","format":false,"excerpt":"Barry Ritholz at The Big Picture had these two comics that brought to the forefront again the issue of moral hazard. Check out the comics and then we'll talk \"on the other side.\" Okay, now some thoughts about moral hazard: The definition of moral hazard (as taken from that scholarly\u2026","rel":"","context":"In &quot;Investment&quot;","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"This is going to get expensive.....","src":"https:\/\/i0.wp.com\/straighttalkaboutmortgages.wordpress.com\/files\/2008\/07\/moral-hazard.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1784,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1784\/mortgage-meltdown-the-end-of-the-world-has-been-delayed-again\/","url_meta":{"origin":1667,"position":5},"title":"Mortgage meltdown? The end of the world has been delayed again","author":"Greg Swann","date":"August 10, 2007","format":false,"excerpt":"This is me from the Arizona Republic (permanent link): \u00a0Mortgage meltdown? The end of the world has been delayed again If you watch the TV news, you can't miss the video clips of financial pundits screeching about the imminent collapse of the mortgage industry. In fact, the world probably cannot\u2026","rel":"","context":"In &quot;Lending&quot;","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=1667"}],"version-history":[{"count":0,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1667\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=1667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=1667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=1667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}