Replies to post #236072 on Mr Cooper Group Inc fka COOP

[steved_45]

Desperado, I know that the value of the other assets is like a slap to the face but when you're leveraged 10x, a decrease in fair market value of the loans are catastrophic under mark-to-market accounting. Supposedly at one point WaMu was leveraged up to 20x but I haven't read that for sure. So all those wonderful assets that JPM got for next to nothing offset the capital that is required to comply w/accounting standards.

Example using only 10x leverage. WaMu has 30BB in deposits (liabilities) and has 300BB in loans (assets). Now if those loans decrease at fmv to 50 cents on the dollar for example, then WaMu has to actually cover the loss; therefore a 300BB portfolio may only have 30BB in cash/deposits coupled w/short term and long term liabilities (see the link I posted earlier) but a 50% reduction will require someone to pony up 120BB b/c of mark-to-market accounting.

Now the argument for WaMu concerning asset valuation, is that these loans performed at better than XX cents on the dollar based on JPM's profits, and therefore are/were worth more than XX cents on the dollar. To be honest, I don't really know how you can value the fair market value of a sub-prime loan or any other RE loan on WaMu's books when liquidity had completely dried up and the market had completely stopped performing like a "fair market"? Do you value the loan at the time of the seizure (next to nothing b/c no buyers in "the market") or do you look at its performance? I really don't know. And I doubt anyone on this board, JH, or anyone on his team does also. IMO, I think JH will give a range of estimated values of these assets (RE loans) based on certain scenarios of the market i.e. value in a crappy market during the credit crisis and value in a healthy market w/reasonable liquidity. What I do know is that all $5.5BB of the tax refunds are going back to the estate and that the seizure was effectuated in pure panic w/o key facts and stats of WaMu's financial health.

IMO, mark-to-market accounting is the biggest reason why WaMu had such financial difficulties--hence the need for TPG's 8BB injection. It's just not talked that much on this board for whatever reason.