Today the Fed releases the results of the banking industry “stress test.” You remember this test right? The Fed created a scenario of economic failure well beyond what is already the worst economic downturn in seventy years. They then evaluate the banks’ ability to withstand this Armageddon against the Fed’s own made-up base line. (Let’s not cloud the issue with the idea that the economy is already turning around.) They then tell the banks which failed the made-up test to take some very not made up actions: increase assets. How? Well, that’s the easy part: you can raise private funds (a very tough hill to climb in this credit market), you can accept more TARP funds (that many of them didn’t want in the first place) along with the business stifling, government mandates that go with them, or… you can simply convert the government’s preferred stock into common stock (thus increasing the government’s control of the bank – sometimes to a majority stake).
Interesting results: Bank of America needs roughly 35 billion dollars (despite the $45 billion dollars already given them by the Fed in exchange for preferred stock). Isn’t this the same bank that took over Countrywide at the Fed’s behest and backing? It seems that by following the Fed’s request, Bank of America is now more likely to be owned by the Fed. But let’s leave that bit of conundrum alone. Let’s take a look at Wells Fargo – by far the strongest of the major banks. Let me ask you: which was the only major bank to have their results leaked way back on Monday? Wells Fargo. Which was the first major bank to ask to return the TARP funds they were forced to accept? Wells Fargo. Which is the only major bank not on life support? Wells Fargo. When the Fed tested the various banks’ liabilities, which is the only major bank with a portfolio that does not contain 100% financing, option arms and teaser rates? Wells Fargo.
I don’t know what the Fed’s intent was because I’m not in the group creating the long term plans of this administration. But it looks an awful lot like a hostile takeover to me. So, as I don my tin foil hat I’m left to ponder the words of the Fed when they FORCED Wells Fargo and others to accept TARP funds in the first place: “We don’t have any interest in owning financial institutions.”
In the immortal words of Charles Laughton in Witness for the Prosecution, I ask (tin foil hat smartly askew): “Were you lying then, are you lying now or are you not, in fact, a chronic and habitual liar!
In my position as liability coach, I meet with a great many Real Estate agents as well as clients. Because of this I am privileged to hear a broad spectrum of opinions and perceptions on the housing market. Lately the topic of conversation has been the short sale. I have listened to seasoned veterans – those that have been through the entire real estate cycle at least once and have seen this before – discuss tactics for helping their clients: everything from the honest assessment required to creative marketing solutions. I have also heard from a great many newer agents – those that have been in the business less than five years – for whom the short sale is a trickier pony to saddle and ride. A common thread throughout, however, has been the short sighted response to a short sale market by residential lender Wells Fargo.
I am hearing from more and more agents about the absolute stonewalling and lack of urgency by anyone they talk to at Wells, whether the agent be on the listing or selling side. If you have not had the misfortune of dealing with Wells Fargo on one of these, one example should suffice: I spoke with a buyer’s agent that has represented an offer on a short sale property with minimal loss to the lender. Her buyer is solid (20% down, lender approved and so on) and the seller has agreed to all terms. It has been in front of a loss mitigation “specialist” at Wells Fargo for SIXTEEN WEEKS! The only thing more surprising than Wells Fargo’s negligent response is the dedication of the buyer to purchase this particular property. I spoke with a listing agent whom I hold in especially high regard that can not even get the loss mitigation “specialist” at Wells Fargo to return his calls. He has added this lesson to his client screening process. If the listing looks like a short sale, he now makes a point of ascertaining who the owners’ current lender is and if the answer is Wells Fargo, he walks away.
In my examples above I put the title of specialist in quotes in relation to Wells Fargo because it seems to me the only thing they are specializing in is the portfolio risk to Wells Fargo. My background is in Securities: I was a Series 7 licensed broker and Equity Options trader on the floor of the CBOE in Chicago. My first thought when I hear these stories is to start selling Wells Fargo stock. If their actions are making the short sale of property practically impossible, their REOs are going to climb and their books are going to reflect some very real losses. Not to mention the federal banking regulations regarding what percentage of REOs a bank can keep on the books as a percentage of their deposits. All that aside, the real danger to Wells Fargo is the virtual “freezing” of their position in regards to their ability to negotiate with the professionals in the field (that is to say: the Real Estate agents). If agents begin to walk away from anyone with a Wells Fargo loan the damage is threefold: first, Wells Fargo ends up foreclosing on all of their properties which is a cost nightmare that trickles down to all of us; second, homeowners that are upside down will not only lose access to the experienced agents they so badly need while navigating the winding trails of a short sale, but worse yet will find themselves relegated to using agents too new and/or uninformed to know better than take on a Wells Fargo situation; and last but certainly not least, when no agents are willing to waste time showing a short sale home with a Wells Fargo loan, prices are depressed and buyers view a skewed segment of the housing stock.
Has the experience of others out there been similar to the stories I am hearing? I must admit as a matter of full disclosure that while my lending knowledge and experience extends from shore to shore, my interactions with Real Estate agents is primarily parochial in nature. Are there other lenders acting with such short sightedness that your fellow Real Estate agents should beware?
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