I participated in a great debate in the State of Arizona yesterday at www.azcentral.com . I received this in my email from a user named “poppy” and I had to share it with my readers.

“My response that frankly I am not comfortable posting – seriously afraid that no one really recognizes how much they personally are at risk in this whole debacle. Yes I am really an underwriter and risk manager, did a long stint as a Transaction Manager for those idiotic morons on Wall Street as well, no they did not listen to any advice, just bought the junk in a frenzy of indescribable greed and ego. Solutions abound – We the Lending Industry in cahoots with Wall Street made the beasts, we have become what we made…the beasts figuratively stalked, overwhelmed and financially preyed on the consumer and now have no appetite to swallow the debt engorged prey.
 
However, in light of the fact that the beasts may just lose everything that they made in the last 4 or 5 years of carnage, i.e. all prior profits and some future profitability will be decimated by losses already realized and losses that have yet to be realized, maybe it is time that each of the beasts took a scintilla of responsibility and chewed off and partook in a hunk of the carcass. One rather farsighted pundit did reflect that if this chaos of the financial and credit market continues (which it will) they will inevitably lose all of that handy profit and then some due to the present and future losses of the CDO’s, CLO’s, ABS’s, SIV’s and MBS’s, no sector of the market will be secure; A, ALT-A, GAP or Subprime.

The next segment of the market to fold and potentially collapse (the figures that I have seen appear to reflect they are already beginning to weaken) will be the obvious credit card markets, various unsecured credit markets and other ABS debts (auto and such), lots at risk when the domino effect begins to really take hold. Commercial Credit Markets are already in a squeeze for new credits, no appetite in the capital markets, lots of Yen, Euros, and Yuan available, however they are selling not buying the Dollar and Dollar based credits, rats departing as orderly as possible from the yawling ship.

Those of you old enough may remember the old duck and cover routine in First and Second Grade, the one where you hid under your flimsy desk or faced the hallway walls all curled up in preparation for the “BIG” one, well get ready well duck and cover this is most likely the BIG one delivered COD to all of us. Chase/JP Morgan, Bank of America and CitiGroup do not just get together and sit down for a friendly cuppa and offer up billions of dollars to bail their proverbial rear ends and those of their competitors out of love and respect. No, do not be fooled they are rather concerned to say the least. More like they are seriously scared and now recognize their participation in their own possible demise -CitiGroup now owns Ameriquest, a good portion of AMB Ambro, and has significant securitized (they made ‘em and sold ‘em) interests in paper from a variety of worthless loan sources….Wells Subprime (you sanctimonious Wells people really amaze me), Centex, MortgageIt, PHH, Greenpoint, CountryWide all of the usual suspects.

FNMA is surprising quiet about their deep losses, they really tightened their automated underwriting here very recently, horse would be out of the barn and well down the road mind you. MI companies are for the first time in some of their histories not paying dividends to their share holders due to massive losses caused in loan insurance coverage. So….what should these erudite and sage suits of Wall Street and Banking do?

Pretty simple, advise each and every investor in mortgage backed securities arena to buckle up and take the ride of their life. Forget those heavily touted handsome returns, start negotiating the modifications, deeds in lieu and short sales. Get out with their shorts and dignity intact, a little bit of something is a whole lot more appetizing and nourishing than nothing. Buy back what will not willingly participate in the reduction of returns, you sold them in the first place. Waiting only increases the decline in value of the asset, combined with the costs of foreclosure and costs of REO, the losses will be monumental.

That combined with the ripple effect in other credit markets, golly not even a lump of coal in the stocking at Christmas for the poor little investor. That folks is all of you, your States invested in these abominations, your pension trust funds, 401K funds, your companies, and numerous other financial investment vehicles and investment houses that you have direct and indirect interests in are invested in this “becoming” worthless paper.

So….not only could you get to bail out this disaster with your tax dollars, your other dollars are at work too, some of your retirement funds and other investment funds are invisibly a little shorter today than they were yesterday. Do not even begin to assume that you are immune from this, if your State has this paper, which they do, they have to make up the losses somehow, taxation is their general recourse and you are the beneficiary of that largess. You have a personal financial stake in this, write, call and demand that your elected officials, Office of the Currency, State Banking Commissions, SEC, et al, get off their self aggrandizing rear ends and compel, embarrass, what ever it takes to coerce the investors, holders and creators of these securitizations to act responsibly now. Forget Congressional Hearings, Studies of Impact, and the sort, kind of like fiddling while Rome burns.

Do I like the concept of Bail Out, no I do not, am I a willing supporting of the concept, no I am not. It makes me furious that we are held over the barrel to bail this mess out. It could have been avoided in the first place with some responsible lending procedures and policies instead of the rampant greed and egos that drove us to this bus stop in the desert where we ran out of gas. We must insist that the negotiation process begin immediately with each and every at risk borrower, sooner rather than later. Refinance what we can in an FHASecure Loan product, work out what we can not salvage in short sales, deed in lieu or fix the rate at something the homeowner can actually be expected to afford to pay, using full documentation to ascertain that they really can.

Not everyone will get to keep their house, even at the start rate they failed, fine, get a deed in lieu or negotiate a short sale. Forgive the accrued interest on the Neg Am products – they are upside down in their houses, the ever declining value does not support a refinance let alone common sense to keep making payments on the damn thing. Forgive principal amounts on some of the 20% Seconds to align the CLTV’s to the values. If you still have it in your portfolio, FIX it, get the borrower in a product they can financially manage. Use anything at your disposal to mitigate the greater loss and swallow the lessor loss.

Now having said that they must be primary occupancy properties, no investors, no, no, no you get what you deserve….you helped fuel this little mess. Suck it up and make your payments investors, remember your stated income to me on the 1003 was 35,000.00 per month, so I know you have the monthly income to make those payments, now if you lied – well I am sure that you did, a little foreclosure would be good for the soul.

This is what I mean by everyone of the beasts taking a hunk of the carcass and downing it, they need to forgo returns and a portion of the principal in some cases to avoid the fatality of losing all of the profits they made in the last 4 to 5 years and more.

We are all losers under any circumstances, whether we let this go unchecked without a Bail Out or guardedly checked with a Bail Out – what we lose is just a matter of how much they swallow which with luck will mitigate some of our losses. Now lest you think we have seen the worst of this to date…..please realize that the 3 year ARMS from 2005 have not adjusted yet, the 2 year ARMS from 2006 are getting ready and those ever popular Option ARMS…well the bulk of them begin to adjust next November in 2008.

Oh and those nasty foreclosures, that you appear to w
ish on “those” people, they are your neighbors, members of your church/synagogue/temple, maybe members of your family, Elderly that were preyed on, and God forbid, but there for the grace of God, maybe you if some action is not taken to stem this tide. ”