Quote: Rediseniurt....I believe you stated that you worked for WAMU back when...I got a question?...if WAMU created MBS, and sold them to public investors...who held Title to the property?...so investors bought the various Tranches of MBS that WAMU sold to them, and homeowners made principal and interest payments each month to WAMU until the MBS were paid off... WAMU got a fee for servicing the MBS....so my question.. would not WAMU have to put the MBS in some Trust to protect title to the homes, if WAMU went bankrupt?...so although the value of the Safe Harbor assets were placed in Trust, WAMU did not own those values, the investors did when they purchased the MBS...the point I am trying to make is that a lot of talk about billions of dollars in Trust is actually not correct...the only thing WAMU owns is the Title to the contents of the MBS for safe keeping, in the event of a bankruptcy of WAMU...this question is quite clumsy, but I think you get the drift... TIA... Lodas
Just step back for a moment to think about where the funds came from to make the loan in the first place. WaMu didn't use their equity to make loans. They used deposits or FHLB funds or something like that....so they BORROWED money from someone else to loan it. Simply put, there is a limit to how many loans a bank can make until it's has no more money left to loan, right? That why the Business of "mortgage banking" (look it up) became popular because the bank could originate a loan then immediately sell it to Freddie/ Fanny for a profit and keep the servicing, and then do it again 30 days later.
Here is some basic math for how a bank can make money with Mortgage Banking:
Bank has 1M of shareholder equity. The bank can leverage it 10X, so it raises 10M in deposits and then immediately turns around and loans the 10M out for mortgages. The bank Balance sheet would be 11M in Assest, 10M in Liabilities, and 1M in equity. Capital ratio would be 9%.
The mortgage banking model would have them sell the loans for 102.5%-1.04% of the loan amount within 30 days of origination (includes the capitalized value of the servicing). So lets say that mean they now have 10,250,000 to 10,400,000 returned to them. But of course there are origination (commissions, underwriting, general overhead) fees of about 2% of the loan, which means the bank would make about 50,000 to 200,000 after the first "turn". Now do this 10 times a year (definitely doable) Net income is somewhere between 500,000 and 2,000,000 in the first year. Now lets go back to our balance sheet. We started with 1M in equity, so our annual return on equity is somewhere between 50%-200%. (also, in year 2, the starting equity is about 1.5M, so now you can leverage THAT 10X, and now you have 15M in deposits to lend.....)
So this model works great in theory, and I illustrated a "perfect" execution, which of course never happens because nothing every goes perfectly. But there is a lot of wiggle room in that example to absorb the occasional loss or change in rates etc. and still generate a superior ROE.
So now, take it a little further. A HUGE, sophisticated bank actually has the ability to create this exact same model, but WITHOUT using the govt agencies. Freddie and Fanny have loan limits and underwriting standards that not every loan can meet. So not everyone would even WANT a loan that conforms to those standards. So banks like WaMu would create their own loan products and pool and securitize them. They would create what was essentially a bond and have it credit rated by moody's or whoever and then use a trust to sell "shares" of the bond to institutional investors. The existence of the trust DOES in fact insulate the securitization participants from the risk of the securitizer. Thats the point. And, just like in the Mortgage Banking Model, when they sold to an agency, they get their money back very quickly with a nice little profit. Same EXACT concept. The main difference is that WaMu often held a piece of each of the securitizations as a way to demonstrate that they still has some "skin in the game." But the fact that they retained shares in the securitizations did not entitle them to anything beyond what any other participant would be entitled to.
Bottom line is that maybe the Trusts were excluded from BK because WaMu had nothing to do with them anymore aside from owning some shares in the securitizations. Also, those trusts got absolutely HAMMERED with losses. These are uninsured loans that didn't quality for Freddie / Fanny. Many of the securitizations had a ton of crap loans in the bottom tranche with just enough "AAA" loans to trick Moody's into signing off that the securitization was investment grade. WaMu realized this.....trust me. Anyway, lets say there is some residual stake that WMI still has (dont see how), how much could it be worth if they started with maybe 10% of a 600M securitization that took 35% losses 13 years ago.
Sorry, doesnt add up for me.
