WHAT ROLE DID WALL STREET PLAY IN THE BOOM?
A perfect example of the boom is found in the chart below. After reviewing many originators history, it is clear that ALL of them abandoned originating fixed rate loans- or even normal 5 year arms, in favor of no-doc, subprime, negatively amortizing arms.
Then, as if that wasn’t dangerous enough, they layered on debt with second mortgages, home equity lines of credit and even third mortgages.
Bear Stearns went from originating only roughly 15, 000 home equity or second lien loans with a value slightly over ½ Billion to well over 100,000 loans with a value of 5.5 Billion. Did the home values really warrant such a spike in value to support such an explosion of credit? Of course not, it was a fabrication of epic proportions that included an industry manipulating a market for short term financial gain.
BEAR STEARNS SECURITIZATION EXAMPLE
Loans December 31, 2004 December 31, 2005 June 30, 2006
TYPE No. Loans - Total Value No. Loans - Total Value No. Loans - Total Value
| Alt-A ARM 44,821 - $11,002,497,283.49 73,638 - 19,087,119,981.75 45,516 – $12,690,441,830.33
Alt-A Fixed 15,344 - $4,005,790,504.28 17,294 - $3,781,150,218.13 9,735 - $2,365,141,449.49 HELOC - 0 $ 0 9,309 - $ 509,391,438.93 4,360 - $310,097,521.60 Prime ARM 30,311- $11,852,710,960.78 27,384 – $13,280,407,388.92 4,203 - $2,168,057,808.87 Prime Fixed 1,035 - $509,991,605.86 3,526 - $1,307,685,538.44 1,083 - $484,927,212.35 Seconds 14,842 - $659,832,093.32 114,899 - $5,609,656,263.12 68,788 - $3,755,330,847.76 Prime Short Duration ARM 23,326 - $7,033,626,375.35 38,819 – $ 14,096,175,420.37 39,946 - $15,102,521,877.81 SubPrime 98,426 – $13,051,338,552.19 101,156 - $16,546,152,274.44 34,396 - $6,069,878,975.92 Totals 230,907 -$48,427,650,052.74 388,902 - $74,488,789,990.05 209,831 – $43,061,525,370.96 |
Notice that between 2004 and 2005 Bear Stearns Alt-A arm originations almost doubled while FIXED loans remained relatively flat. Did all the borrowers suddenly ask for adjustable rate loans instead of fixed? Of course not, it was the mandate of the Wall Street participants to originators and brokers to sell and push only adjustable rate loans which were necessary to support residual and net interest margin investment classes they held for themselves or could sell them for additional profits, as well as using excess interest to cover for losses on other loans which were not paying. This fundamental structure for excess profit would not have been possible if they originated a securitized only fixed rate loans. They did this to borrowers for greed and profit.
WHY ADJUSTABLE RATE LOANS WERE
The investor pass through rates were tied to the 1 month LIBOR plus a small margin, while the borrower’s loan was tied to the 1 year LIBOR plus a large margin. A spread existed in the difference between the 1 or 6 month LIBOR and the 1 year LIBOR already, but combine that with the rounding code of .125% found on all adjustable rate notes, and the margins of 1% -6% or higher found on borrower loans, and Wall Street had a hidden dirty secret for profit – EXESS INTEREST SPREAD.
The investors DO NOT GET PAID ANY MORE IF YOU PAY 2% or 10% they were only promised the LIBOR plus small spread.
No matter what the borrower pays that’s all they get!!!
From this chart you can see the built in spread between 1 month LIBOR and 1 Year LIBOR which began in April of 2008 and how over time the LIBOR has gone down. Current spread as of December 2011 is the investor 1 month LIBOR is .2830% and the borrower is tied to the 1 year LIBOR of 1.0987% for a built in profit spread of .8157%. But when further adding the investor margin of less than 1% on average and the borrower margin of 2-6%, Wall Street planned the biggest scheme of all, skimming large interest payments
based on the spreads. This is not Wall Street doing good business for investors, in fact they scammed all sides!!
This is why the investors are not getting the return they bargained for, not because of borrower defaults. In fact, the excess or residual classes held by the Wall Street firms are the one who are suffering the most losses and have lost the excess interest they schemed to receive.
|
You searched for historical values of the following indexes: |
|
Date |
1-Month |
6-Month |
1-Year |
|
Jan 2008 |
3.9772 |
3.8548 |
3.5091 |
|
Feb 2008 |
3.1393 |
3.0112 |
2.8140 |
|
Mar 2008 |
2.8069 |
2.6815 |
2.5124 |
|
Apr 2008 |
2.7809 |
2.8227 |
2.8019 |
|
May 2008 |
2.5315 |
2.8591 |
3.0270 |
|
Jun 2008 |
2.4702 |
3.0941 |
3.4106 |
|
Jul 2008 |
2.4601 |
3.1184 |
3.2852 |
|
Aug 2008 |
2.4672 |
3.1069 |
3.2374 |
|
Sep 2008 |
2.8615 |
3.2976 |
3.3365 |
|
Oct 2008 |
3.8681 |
3.9158 |
3.8236 |
|
Nov 2008 |
1.6550 |
2.6843 |
2.8435 |
|
Dec 2008 |
1.1214 |
2.2003 |
2.4058 |
|
Jan 2009 |
0.3842 |
1.6264 |
1.9038 |
|
Feb 2009 |
0.4589 |
1.7498 |
2.0571 |
|
Mar 2009 |
0.5323 |
1.8303 |
2.1240 |
|
Apr 2009 |
0.4541 |
1.6619 |
1.9409 |
|
May 2009 |
0.3503 |
1.3818 |
1.7007 |
|
Jun 2009 |
0.3165 |
1.1854 |
1.6773 |
|
Jul 2009 |
0.2914 |
0.9855 |
1.5014 |
|
Aug 2009 |
0.2708 |
0.8467 |
1.4266 |
|
Sep 2009 |
0.2476 |
0.6816 |
1.2709 |
|
Oct 2009 |
0.2444 |
0.5930 |
1.2339 |
|
Nov 2009 |
0.2385 |
0.5229 |
1.0980 |
|
Dec 2009 |
0.2330 |
0.4546 |
0.9999 |
|
Jan 2010 |
0.2316 |
0.4021 |
0.9059 |
|
Feb 2010 |
0.2289 |
0.3876 |
0.8518 |
|
Mar 2010 |
0.2364 |
0.4081 |
0.8698 |
|
Apr 2010 |
0.2573 |
0.4688 |
0.9514 |
|
May 2010 |
0.3291 |
0.6418 |
1.1148 |
|
Jun 2010 |
0.3489 |
0.7518 |
1.1894 |
|
Jul 2010 |
0.3361 |
0.7224 |
1.1240 |
|
Aug 2010 |
0.2769 |
0.5834 |
0.9485 |
|
Sep 2010 |
0.2571 |
0.4793 |
0.8073 |
|
Oct 2010 |
0.2562 |
0.4556 |
0.7688 |
|
Nov 2010 |
0.2539 |
0.4454 |
0.7640 |
|
Dec 2010 |
0.2618 |
0.4587 |
0.7842 |
|
Jan 2011 |
0.2606 |
0.4555 |
0.7817 |
|
Feb 2011 |
0.2629 |
0.4634 |
0.7928 |
|
Mar 2011 |
0.2540 |
0.4610 |
0.7800 |
|
Apr 2011 |
0.2216 |
0.4423 |
0.7699 |
|
May 2011 |
0.1993 |
0.4162 |
0.7417 |
|
Jun 2011 |
0.1874 |
0.3978 |
0.7267 |
|
Jul 2011 |
0.1864 |
0.4131 |
0.7445 |
|
Aug 2011 |
0.2103 |
0.4577 |
0.7774 |
|
Sep 2011 |
0.2304 |
0.5203 |
0.8315 |
|
Oct 2011 |
0.2435 |
0.5929 |
0.9059 |
|
Nov 2011 |
0.2526 |
0.6741 |
0.9934 |
|
Dec 2011 |
0.2830 |
0.7782 |
1.0987 |
CURRENT LIBOR FOUND ON MORTGAGEX.com
|
You searched for historical values of the following indexes: |
|
Date |
1-Month |
6-Month |
1-Year |
|
Nov 2011 |
0.2526 |
0.6741 |
0.9934 |
|
Dec 2011 |
0.2830 |
0.7782 |
1.0987 |
The investor will never receive more than LIBOR plus the margin you see below added for that class. In this case the investors in the senior classes will only receive pass through rates of LIBOR currently at
.22% plus .150% or .37%! YES That is less than one percent interest!!!
|
Initial Aggregate |
Pass-Through Rate(1) |
|
Underwriting |
Proceeds to the |
||||||||||||||||||||||
| Class A-1A Certificates | $ |
637,531,000 |
LIBOR + 0.150% |
|
0.1985282 |
% | $ |
636,265,321 |
||||||||||||||||||
| Class A-2A Certificates | $ |
168,800,000 |
LIBOR + 0.070% |
|
0.2000000 |
% | $ |
168,462,400 |
||||||||||||||||||
| Class A-2B Certificates | $ |
120,500,000 |
LIBOR + 0.120% |
|
0.2050000 |
% | $ |
120,252,975 |
||||||||||||||||||
| Class A-2C Certificates | $ |
97,300,000 |
LIBOR + 0.170% |
|
0.2050000 |
% | $ |
97,100,535 |
||||||||||||||||||
| Class A-2D Certificates | $ |
30,169,000 |
LIBOR + 0.240% |
|
0.2100000 |
% | $ |
30,105,645 |
||||||||||||||||||
| Class M-1 Certificates | $ |
63,050,000 |
LIBOR + 0.240% |
|
0.2300000 |
% | $ |
62,904,985 |
||||||||||||||||||
| Class M-2 Certificates | $ |
40,300,000 |
LIBOR + 0.290% |
|
0.2500000 |
% | $ |
40,199,250 |
||||||||||||||||||
| Class M-3 Certificates | $ |
24,050,000 |
LIBOR + 0.360% |
|
0.2750000 |
% | $ |
23,983,863 |
||||||||||||||||||
| Class M-4 Certificates | $ |
18,850,000 |
LIBOR + 0.380% |
|
0.3000000 |
% | $ |
18,793,450 |
||||||||||||||||||
| Class M-5 Certificates | $ |
18,850,000 |
LIBOR + 0.400% |
|
0.3250000 |
% | $ |
18,788,738 |
||||||||||||||||||
| Class M-6 Certificates | $ |
14,950,000 |
LIBOR + 0.450% |
|
0.3500000 |
% | $ |
14,897,675 |
||||||||||||||||||
| Class M-7 Certificates | $ |
11,050,000 |
LIBOR + 0.800% |
|
0.4250000 |
% | $ |
11,003,038 |
||||||||||||||||||
| Class M-8 Certificates | $ |
9,100,000 |
LIBOR + 1.050% |
|
0.5000000 |
% | $ |
9,054,500 |
||||||||||||||||||
| Class M-9 Certificates | $ |
13,650,000 |
LIBOR + 1.950% |
|
0.5389581 |
% | $ |
13,576,432 |
||||||||||||||||||
| Class M-10 Certificates(3) | $ |
11,700,000 |
LIBOR + 2.250% |
|
N/A |
N/A |
||||||||||||||||||||
| Total | $ |
1,279,850,000 |
$ |
1,265,388,806 |
||||||||||||||||||||||
| Class |
Related Mortgage Pool(s) |
Class Principal Amount(1) |
Interest Rate Formula (until Initial Optional Termination Date)(3)(4) |
Interest Rate Formula (after Initial Optional Termination Date)(4)(5) |
Principal Type |
Interest Type |
Initial Certificate Ratings |
|||||||||||||||||||
|
Moody’s |
S&P |
Fitch |
||||||||||||||||||||||||
| A1 |
1 |
$274,177,000 |
LIBOR plus 0.130% |
LIBOR plus 0.260% |
Senior(7) |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A2 |
2 |
$125,000,000 |
LIBOR plus 0.030% |
LIBOR plus 0.060% |
Senior, Sequential Pay(6) |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A3 |
2 |
$ 30,000,000 |
LIBOR plus 0.090% |
LIBOR plus 0.180% |
Senior, Sequential Pay(6) |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A4 |
2 |
$ 90,210,000 |
LIBOR plus 0.150% |
LIBOR plus 0.300% |
Senior, Sequential Pay |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A5 |
2 |
$ 42,333,000 |
LIBOR plus 0.310% |
LIBOR plus 0.620% |
Senior, Sequential Pay |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A6 |
2 |
$148,747,000 |
LIBOR plus 0.050% |
LIBOR plus 0.100% |
Senior, Sequential Pay(6) |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| A7 |
1 |
$274,177,000 |
LIBOR plus 0.130% |
LIBOR plus 0.260% |
Senior(7) |
Variable Rate |
Aaa |
AAA |
AAA |
|||||||||||||||||
| M1 |
1 & 2 |
$ 50,431,000 |
LIBOR plus 0.280% |
LIBOR plus 0.420% |
Subordinated |
Variable Rate |
Aa1 |
AA+ |
AA+ |
|||||||||||||||||
| M2 |
1 & 2 |
$ 40,591,000 |
LIBOR plus 0.290% |
LIBOR plus 0.435% |
Subordinated |
Variable Rate |
Aa2 |
AA |
AA |
|||||||||||||||||
| M3 |
1 & 2 |
$ 22,756,000 |
LIBOR plus 0.320% |
LIBOR plus 0.480% |
Subordinated |
Variable Rate |
Aa3 |
AA- |
AA- |
|||||||||||||||||
| M4 |
1 & 2 |
$ 18,451,000 |
LIBOR plus 0.350% |
LIBOR plus 0.525% |
Subordinated |
Variable Rate |
A1 |
A+ |
A+ |
|||||||||||||||||
| M5 |
1 & 2 |
$ 19,066,000 |
LIBOR plus 0.370% |
LIBOR plus 0.555% |
Subordinated |
Variable Rate |
A2 |
A |
A |
|||||||||||||||||
| M6 |
1 & 2 |
$ 17,221,000 |
LIBOR plus 0.450% |
LIBOR plus 0.675% |
Subordinated |
Variable Rate |
A3 |
A- |
A- |
|||||||||||||||||
| M7 |
1 & 2 |
$ 14,760,000 |
LIBOR plus 0.900% |
LIBOR plus 1.350% |
Subordinated |
Variable Rate |
Baa1 |
BBB+ |
BBB+ |
|||||||||||||||||
| M8 |
1 & 2 |
$ 12,300,000 |
LIBOR plus 1.050% |
LIBOR plus 1.575% |
Subordinated |
Variable Rate |
Baa2 |
BBB |
BBB |
|||||||||||||||||
| M9 |
1 & 2 |
$ 11,070,000 |
LIBOR plus 1.900% |
LIBOR plus 2.850% |
Subordinated |
Variable Rate |
Baa3 |
BBB- |
BBB- |
|||||||||||||||||
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