Maybe I didn't make ny self clear on the loan business.
More explicit 3 Categories -
1) Prime
2) Sub-Prime
3) Stupid As in Low-Doc (means low documentation of income)
>Stupid as in No-Doc - no documentation of income,
>100% Loan-to-Value
>No Property Apprasil or "Drive-by" Apprasil (Appraser does not get out of the car, but collects $150)
>Interest Only
and my favorite >>>>Negative Amortization. <<<<<<
Many loans combine more than one of the above elements !
These loans were made becuase the sub-pime people were chasing the fee income to stay in business after the re-finance business went away.
Now, these stupid loans are going to blow up without much regard for what happens in the economy, short of a return to the housing price boom.
These loans don't tell us much about how the legitimate sub-prime loans will behave, becuase the legitimate sub prime loans went to owner occupants with jobs, some type of ok credit rating, and ususally under 90% loan to value.
Some of the sub prime lenders avoided making too many stupid loans, and other went overboard on the bad loans. Like making the 17% of loans with > 95%loan to value.
Wa-Mu Wahsington Mutual when way into the yucky part of sub-prime, Wells Fargo didn't. Wells Fargo also has lots of other banking business.
If I knew more, I would like to play the short side, but I don't really have enough information.
After some more blow ups, we might see some bargains.
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I expect we will see some large regional differences.
Everything in a 200 mile radius of Detroit is being hit hard - the sky may be falling.
Las Vegas is tanking hard.
West side Los Angeles area is off a little.
Silicon Valley is holding up, still close to 10-15% of the peak on average.
San Francisco itself may be edging back up in some neighborhoods.
Wells Fargo, being heavily in California, should do better than many rust belt banks.
With the homebuilders, they pretty much all dropped as a group, from marginals like BZH and LEN to KBH. I made some nice money on puts, but really didn't get the sharp drops I wanted except one time.
I don't think we will get this for all the sub prime lenders.
Many of the sub prime lenaders have only the lending business, and don't have diversified businesses like a bank. Some of these may go to zero or close to zero.
Got any candidates, preferably with listed options ? |
