Seattle Bubble

• More Bad News for WaMu
• WaMu: Ouch.
• Ameriquest "cutting and running" In Puget Sound
• WaMu Cuts Home Equity Credit + More Financing News
• WaMu: Housing Slowdown Driving Down Profit

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57 responses so far ↓

• 1 Sniglet // Apr 8, 2008 at 11:01 am

  This may be a naive question, but why is the closure of wholesale lending such a big deal? WaMu will still be in the retail lending business, right? Isn’t that the direction all big lenders are going in these days anyway? From what I understand, the retail lenders are actually growing their businesses, taking market share from independent brokers.

• 2 LT // Apr 8, 2008 at 11:34 am

  I hate to say this but the best way to have lower home prices is to have people laid off from work.

  Now all we need is Starbucks, Boing and Microsoft to go out of business

• 3 Groundhogday // Apr 8, 2008 at 11:49 am

  So Walmu “might” survive, though at a fraction of it’s 2007 size? That certainly justifies yesterdays big upward stock move, doesn’t it.

• 4 s.data // Apr 8, 2008 at 11:56 am

  Isn’t it an overstatement to say they are doing away with Home Loans…aren’t they just changing the avenue of origination?

• 5 b // Apr 8, 2008 at 12:14 pm

  Sniglet -

  From what I can google, it looks like WaMu had over $100b in wholesale loans originated in 2006. I could not find any newer information than that, but it was the 3rd largest at that time which means a large chunk of money available to loan has disappeared.

• 6 Buceri // Apr 8, 2008 at 12:19 pm

  Do we know how many positions from last December’s 3000 jobs lost, and the just announced 3000 are based in the PS?

• 7 jon // Apr 8, 2008 at 12:27 pm

  Do any of those 11 want to change their vote on if “Seattle-area housing market hit bottom?”

• 8 budbrad // Apr 8, 2008 at 12:31 pm

  A personal tidbit on WaMu:

  I have stellar credit. The kind people drool over. I have over $200k of equity in my home. Never late on a payment, etc.

  Last week, WaMu essentially closed my HELOC, without warning. I had only used a tiny portion of the HELOC and essentially kept it as an emergency account. And today its gone.

  They are throwing out the babies with the bathwater.

• 9 Denny Retrograde // Apr 8, 2008 at 12:33 pm

  What a comfort that they’re keeping Killinger at the helm. They paid him $14M last year - wonder if he got any sweetener from the cash infusion announced today?

• 10 Michael // Apr 8, 2008 at 12:38 pm

  I’m curious about Wall Street. With a constant barrage of bad news the value of the banks are still rising. Does Wall Street know something that the common investor does not? Perhaps the government bail out is on the way? I can’t see any other explanation.

• 11 Sniglet // Apr 8, 2008 at 12:47 pm

  WaMu had over $100b in wholesale loans originated in 2006. I could not find any newer information than that, but it was the 3rd largest at that time which means a large chunk of money available to loan has disappeared

  Couldn’t WaMu just shift most of their lending to retail? If so, their over-all loan amounts might not decline very much.

• 12 Bryant // Apr 8, 2008 at 1:39 pm

  Where are these 3000 employees located? If they are all from the Seattle office, that could have make a dent in the housing market..

• 13 Scotsman // Apr 8, 2008 at 1:49 pm

  40% of WAMU’s mortgage business came from wholesale. That business was from independent brokers, who will now take their business and contacts to other
  wholesale lenders, Wachovia, etc. WAMU will have to fight an uphill battle to get the business back. They are toast, but may come back as a more traditional thrift/lender.

  But don’t worry about home prices suffering as a result of tighter credit- the bottom is now in. From Breitbart, re: the lowest level of home sales since they started the index-

  Lawrence Yun, the Realtors’ chief economist, said in a statement that the decline in pending home sales “implies we’re not out of the woods yet, though an era of successive deep sales declines appears to be over.”

• 14 Ubersalad // Apr 8, 2008 at 1:50 pm

  Wholesale and retail is entirely different platform, it’s not that simple to just shift them.

  Ps. WAMU was huge in wholesale, and most of their loans were portfolio loans, which they do not sell. This could simply add to the notion that wholesale lending as we know it…is over.

• 15 Ubersalad // Apr 8, 2008 at 1:54 pm

  Why would WAMU want to get the broker business back when they’re exiting wholesale, you lost me there…

• 16 AndyC // Apr 8, 2008 at 2:29 pm

  Turns out WaMu is getting an even larger cash infusion than initially reported, over $7 Billion. This is coming at a significant discount as the new shares are being sold at less than $9/share, compared to the $13+ it was trading at yesterday.

• 17 brettro // Apr 8, 2008 at 2:31 pm

  Woohoo! … oh, wait.

• 18 Brian // Apr 8, 2008 at 2:34 pm

  The jobs are not corporate gigs, so the 3000 will have limited impact on Seattle employment. The infusion of funds diluted the value of the stock, hence the major pullback today in the stock price. Right now, banks are just trying to stay above water long enough to survive the coming/present recession. Housing will most likely continue to decline for the next few years. For those hoping major companies go down like some of the posters on this blog seem to want, you should try and think before you type. The outcome of major layoffs goes well beyond housing. There is nothing wrong with wanting tighter regulations or wanting prices to come down, but be careful what you wish for.

• 19 David McManus // Apr 8, 2008 at 2:48 pm

  “brettro // Apr 8, 2008 at 2:31 pm

  Woohoo! … oh, wait.”

  I have never understood those ads…..

• 20 Scotsman // Apr 8, 2008 at 2:58 pm

  Clearly they are out of wholesale, but they would like to book the loan… just through their own office and people. Lots of Realtors like working with an individual as opposed to a specific institution, so the business stays with the broker, despite his changing relationship with different wholesalers. No lending = no income= no more bank. They still need the volume/business, just through different channels.

• 21 David McManus // Apr 8, 2008 at 3:05 pm

  The jobs are not corporate gigs, so the 3000 will have limited impact on Seattle employment

  “While much of Boeing’s talent remained here even when the bosses decamped for Chicago, the loss of Washington Mutual’s headquarters would mean losing many more highly paid corporate jobs. WaMu employs 4,400 in downtown Seattle alone. It would also be a calamity for commercial real estate as whole floors of two buildings empty out.”

  Sure about that?

  http://seattletimes.nwsource.com/html/jontalton/2004335007_biztaltoncol08.html

• 22 Ubersalad // Apr 8, 2008 at 3:27 pm

  I am lost still, why would broker go through retail channel for loan when they won’t receive compensation?

• 23 Scotsman // Apr 8, 2008 at 4:10 pm

  You’re right, they won’t. WAMU’s own people now have to compete with the broker for the business. That’s not good, as WAMU will likely lose. Thus WAMU will be hurting even worse than they are now- they just lost a bunch of business it will be very hard for them to win back. I doubt they will win it back. Hence, I think they’re done as a business model. And those who just invested $7B in them probably see it as a chance to make sure they’re first in line when it comes to picking up the remains, probably with the intent of rebuilding them as a different kind of bank.

• 24 Ubersalad // Apr 8, 2008 at 4:27 pm

  Umm…I disagree. Retail lending model is proven to be more profitable model than wholesale lending. Therefore by shifting operation from wholesale to retail, it would actually make sense. WAMU’s retail side has always been competing with wholesale broker, they are not one of the same, therefore by eliminating wholesale, it doesn’t change retail side of things.

  They may lose revenue from wholesale channel, but that also goes in line with the notion that wholesale as a whole, is quickly disappearing. So are they really losing out from eliminating wholesale? I don’t think so.

• 25 Scotsman // Apr 8, 2008 at 5:01 pm

  I disagree- a broker with access to a variety of loan programs will always beat a retail lender working in a branch.

  Wholesale isn’t going away, it’s facing new restrictions in lending standards….. as is retail. I’ll always take business, like wholesale, where I don’t have to carry a lot of fixed costs into a declining market over retail with all of its bricks and mortar, fixed employee costs, and attendant bureaucracy. It’s much easier to buy something that already exists, grab a percentage off it, and pass it on.

• 26 Ubersalad // Apr 8, 2008 at 5:07 pm

  I guess latest transition from wholesale to retail from all the big lenders are going to be big mistakes then…

  You are one of the few that still believe wholesale is here to stay.

• 27 Rhonda Porter // Apr 8, 2008 at 5:56 pm

  My apologies if someone else all ready answered this, I believe that WaMU is closing their retail loan centers that were separate from the bank branches…the retail they keep will be from a bank branch, similar to Bank of America.

• 28 Rhonda Porter // Apr 8, 2008 at 6:02 pm

  Scotsman is correct and I think this is a huge issue that banks have with mortgage brokers. Because they can shop various banks to find the best price, they’re losing out on business. Many banks tried to capture business that brokers originate after closing…I’ve had bank-mortgage companies who have tried to hire me boast about the leads they get from broker’s clients after the loan has sold. Banks are full of tricks…including FedEx’ing mortgage offers when a loan has a payoff ordered from an escrow company to the borrower (undercutting the broker).

  Banks are amazing to me. They offer brokers better rates than their inhouse/retail centers undercutting their own and then get their panties in a wad when brokers are originating a majority of the mortgages.

  Banks shake their fingers at those darn brokers for the subprime situation when they (WaMU, Countrywide and Wachovia–formerly World Savings–were the grand daddies of Option ARMS) create the programs, teach and promote the brokers how to sell them…banks underwrite them and then fund the subprime or alt a products… and then shake their fingers at the brokers.

  Darn those tricky bankers!

• 29 Matthew // Apr 8, 2008 at 6:31 pm

  Ubersalad,

  2,300 of the WAMU job cuts are coming in the RETAIL section, not the wholesale.

• 30 Ubersalad // Apr 8, 2008 at 6:33 pm

  what aspect of Scotman’s comment is correct? the part about brokerage is better for consumer or that lenders are better off to operate through wholesale channel than retail. if you are saying that lenders are better off operating through wholesale channel, then please explain why everyone is shutting down wholesale and shifting to retail.

  also, it is misleading to say Wachovia was formerly known as World Savings, Wachovia bought out World Saving’s parent company and change its name. it is entirely different.

• 31 Ubersalad // Apr 8, 2008 at 6:35 pm

  Matthew, and that’s normal, because they’re cutting back their entire operation cost.

• 32 Ubersalad // Apr 8, 2008 at 6:36 pm

  ps, they have been shedding their wholesale operation for months.

• 33 Ubersalad // Apr 8, 2008 at 7:02 pm

  oh I also forgot the fact that Rhonda is a broker, so of course she supports wholesale operation. but when it comes down to operating as a lender, retail is definitely the way to go. better profit and better loan, that is a known fact.

• 34 Jillayne Schlicke // Apr 8, 2008 at 7:38 pm

  Banks open up wholesale channels when they want to continue to grow profits from loan originations beyond what their retail mortgage division can produce.

  Wholesale lending makes sense when it is profitable, period.

  It is very easy for a bank to set up and/or shut down wholesale lending.

  It’s harder to set up and then shut down it’s own retail mortgage banking branch operations….However, WaMu must cut costs in order to survive. Mortgage lending profits are shrinking, and labor + rent are the fastest ways to cut expenses.

  The LOs I had in my class today said “good riddance” because they really didn’t send much business to WaMu wholesale anyways. There are only a handful of good wholesale options left now, and I think most of them are on the ml-implode watch list.

  3rd party originations are being scrutinized and sent through all kinds of interesting analytics these days. I’m sure we’ll have plenty to read over the next few years about the default ratios of 3rd party originations but we must also take a look at the source. Everyone is still blaming everyone else for the mortgage crisis.

  Mortgage Insurance Companies today were downgraded across the board. Surely their losses weren’t ALL because of loans originated by “mortgage brokers.”

  This story is far from over. :)

• 35 david losh // Apr 8, 2008 at 7:47 pm

  I’m a high risk borrower that WaMu wouldn’t touch until 2005. In 2004 they couldn’t make me a loan, in 2005 I got two. They have always been conservative and yes have a huge set of portfolio loans.
  I think it’s more a matter of liquidity than anything else. WaMu will go back to generating high quality paper it can readily bundle and sell. They keep what’s profitable and sell what they need to.
  They don’t need volume, never did, and I don’t understand why they started with higher risk loans.

• 36 Scotsman // Apr 8, 2008 at 8:20 pm

  It was, a long time ago, on a planet far, far away, very profitable to bundle and resell loans to investment funds, pension funds, etc. In fact, you could get well over the average coupon rate, plus some nice handling fees. Easy money, lots of it. Everybody wanted the high projected returns. Very, very few had the discipline and adherence to fundamentals to see that it wasn’t going to end well. I can’t blame WAMU for participating, but it’s just as hard hard to excuse them. With the dot-com bust only 5-6 years back at the time this all started, it’s difficult to see how so many could forget that indeed, fundamentals do matter, and reality, in terms of a realistic ability to pay should still rule. Instead, competitiveness, and in some cases greed, won the day.

  Uber, I take it you’re a banker. Good luck with that. With all the fancy fees and financial goodies gone, banking will return to is old business model where the margins are thin and the salaries are low. I used to be one, will never go back.

• 37 Peckhammer // Apr 8, 2008 at 8:32 pm

  “Would anyone have guessed just a year ago that we would be seeing such drastic measures today?”

  Yes. I called it right here in this blog. I was off by a year or so, of course, but right. That said, I am surprised by how easy they are getting off. Killinger should be flogged, but instead they’ll give him a golden whip as a parting gift..

• 38 AndyMiami // Apr 8, 2008 at 8:41 pm

  really well written analysis below..my take is that there will be A LOT LESS credit available which will continue to reduce values..

  illayne Schlicke // Apr 8, 2008 at 7:38 pm

  Banks open up wholesale channels when they want to continue to grow profits from loan originations beyond what their retail mortgage division can produce.

  Wholesale lending makes sense when it is profitable, period.

  It is very easy for a bank to set up and/or shut down wholesale lending.

  It’s harder to set up and then shut down it’s own retail mortgage banking branch operations….However, WaMu must cut costs in order to survive. Mortgage lending profits are shrinking, and labor + rent are the fastest ways to cut expenses.

  The LOs I had in my class today said “good riddance” because they really didn’t send much business to WaMu wholesale anyways. There are only a handful of good wholesale options left now, and I think most of them are on the ml-implode watch list.

  3rd party originations are being scrutinized and sent through all kinds of interesting analytics these days. I’m sure we’ll have plenty to read over the next few years about the default ratios of 3rd party originations but we must also take a look at the source. Everyone is still blaming everyone else for the mortgage crisis.

  Mortgage Insurance Companies today were downgraded across the board. Surely their losses weren’t ALL because of loans originated by “mortgage brokers.”

  This story is far from over. :)

• 39 Ira Sacharoff // Apr 8, 2008 at 10:05 pm

  If far less credit will be available , that will certainly impact home prices for lower and middle end homes. But what about that small very high end? Will the prices for 10 million dollar homes be affected by less available credit?

• 40 Sniglet // Apr 8, 2008 at 11:20 pm

  Will the prices for 10 million dollar homes be affected by less available credit?

  Without a doubt! If prices decline every other segment of the housing market, then there will absolutely be a negative impact on the very high end. Every segment is, in some way, related to the others: if for no other reason than the fact that it becomes hard for buyers to justify significantly greater premiums than normal going from one housing class to the next.

  In reality, there is no such thing as purely seperate housing classes anyway, it is more like a continuim across the spectrum, and if some buyers are unable to sell their less wealthy home and “move up” it will exert downward pressure higher up.

  Lastly, a credit crunch will hit the earning power of all consumers, be they the poor or super-wealthy. Just look at how Manhattan real-estate is already taking a hit due to the decline in profits, and lay-offs, on Wall Street. As lay-offs trickly through other firms we aren’t going to see the executives spared the pain. Stock options won’t be worth as much, and pay-days from IPOs will be a thing of the past.

• 41 Buceri // Apr 9, 2008 at 4:03 am

  TIM MADE IT NATIONALLY ON NPR (April 9th - an “Morning Edition”)

  They had a piece on “no bailout”; and there was “Tim Ellis from SeattleBubble.com”. it aired at 6:40am. Again at 8:40am.

• 42 Buceri // Apr 9, 2008 at 5:10 am

  WAMU - From this morning’s PI:

  WaMu plans to close all 186 of its freestanding home loan offices (including 23 in Washington, most of those in the Puget Sound region), laying off 3,000 employees. That comes on top of nearly 3,300 job cuts announced in December. It also plans to end wholesale lending, meaning loans produced through brokers. The company has said in recent months that it plans to drive more of its home loan business through its 2,200 retail-bank branches. In addition, WaMu is closing a loan fulfillment center in Bellevue, which employs 119. The company expects to complete the closings by the end of the second quarter.

• 43 Sniglet // Apr 9, 2008 at 6:46 am

  Here is the link to the NPR piece Tim was on:

  http://www.npr.org/templates/story/story.php?storyId=89490052

• 44 david losh // Apr 9, 2008 at 7:19 am

  It wasn’t far from anywhere not so long ago there was easy money. Where is it today? That’s the question.
  If I make money, lots of it, it goes into other things that have value to me that in my opinion will have future value, like gold. Right now I like oil.
  What always amazes me on this blog is the references to joe six pack or looking at things from the workers perspective. WaMu laid off people, became leaner, cut the dividend, so the stock holders could absorb immediate losses.
  It was, in my opinion, 2005 that WaMu began making highly profitable loans. Some of those loans are still on the books at good value because they are 100% on lower value properties. We just don’t see $250K properties today, even with the bursting bubble.
  OK, credit dries up, foreclosures make a new round of millionaires, and the rest of the paper stalls on the open market. The market for paper today is what currencies were in the 1980s, in my opinion. I can invest in Europe, Asia, South America, or the United States.
  Eleven years ago I was paying $80K cash for a condo in Italy. Today that same condo is between 200K to 300K in Euros. If I bought in South America I paid $35K for a house, cash. Today it’s a fifteen year mortgage with 20% down at $125K.
  In the world of paper, OK bonds secured by paper, what would you buy? The choices are, today Mexico, South America, Asia, Europe, or the United States that has been trading in mortgages since the crash of the stock market in the 1920s. I just believe smart monay has this thing figured out.

• 45 Ubersalad // Apr 9, 2008 at 10:16 am

  Scotsman, actually I was a broker for 4+ years and always look at bankers as those that cannot sell loans. It doesn’t take much to enter data into a system and read the result to client.

• 46 Matthew // Apr 9, 2008 at 11:38 am

  I think we should just rename the article to:

  Goodbye WaMu.

• 47 james // Apr 9, 2008 at 1:03 pm

  What will they do with the WAMU Tower on 2nd and University?

  A condo conversion?

• 48 Ubersalad // Apr 9, 2008 at 1:03 pm

  Goodbye Wholesale sounds better.

• 49 jcricket // Apr 10, 2008 at 2:47 pm

  Phew - looks like my broker snuck me in just in time with Wamu. Got a 5.25% fixed rate loan that was brokered out to them. A deal that was better, with all costs included, than any retail rate I could get/negotiate. As an anecdote - I’ve only experienced one occasion were going the retail route was better for me in my various mortgage-buying/refinancing adventures. So my broker clearly isn’t steering me into anything that’s solely beneficial to her.

  I do shudder to think about the impact to commercial real estate and the job market if Wamu gets gobbled up by some other big bank. However, even if they do get bought the job losses won’t be immediate (i.e. not in 2008) but those types of corporate losses end up being pretty bad for the local economy, at least in the short-term. I’m hopeful that by the time this might happen, the general economy will have turned around and the market will absorb those “losses” in other areas (whatever sectors are growing are that time).

  As a side note, Wamu only has people on 4 floors of the original Wamu Tower (1201 Third Avenue). They do have a bank branch and a home loan center on the lobby-level of that building, I’m guessing the home loan branch is going bye-bye. But the newer Wamu Center (attached to/above the Seattle Art Museum) is a different story. 50+ floors of Wamu employees, in all their low-walled cubicle glory (ha!). It’s a really nice office tower, though, with a great cafeteria and a huge outdoor patio that’s pretty high up. Someone else will pick it up if Wamu gets bought.

  Maybe Amazon will shelve their move to SLU and move to Wamu HQ instead :-)

• 50 S-Crow // Apr 10, 2008 at 3:05 pm

  5.25% JCricket?

  That is awfully good. Almost hard to believe good. 30 yr fixed? And no out of pocket costs? All rolled into the rate/term? I have not seen those rates in well over a month. Who is your broker? I have a lot of referrals for her. Seriously.

  Contact me offline.

• 51 Ubersalad // Apr 10, 2008 at 4:20 pm

  Probably BS. Nothing is finalized until they record.

• 52 jcricket // Apr 11, 2008 at 10:45 am

  Not BS - I just refinanced in at the right moment back in February when rates took a short dip into that territory. 5.25%, 30 year fixed, conforming loan (under the $417k limit). No cash-out.

  I also didn’t say no out of pocket costs. I said the deal was better, comparing apples-to-apples (so not just the rate, but also the costs) to any retail deal I could find. My out-of-pocket costs were quite low, though.

  And the loan was locked back in February, funded February 29th and I made my first official payment at the beginning of April - so it’s all sealed.

• 53 jcricket // Apr 11, 2008 at 10:51 am

  Tim (S-Crow) - I sent you an email.

• 54 Ubersalad // Apr 11, 2008 at 12:25 pm

  S-crow thought you meant “recently”.

• 55 Marc // Apr 11, 2008 at 3:03 pm

  jcricket,

  I’d appreciate your broker’s contact info as well if she is that good. Please email me as well.

• 56 jcricket // Apr 11, 2008 at 5:30 pm

  Sorry if I gave anyone the impression that I got the deal yesterday or anything. Also, end of February’s not that long ago. What I was referring to with the “phew” is that WaMu wouldn’t have been in the business to take on my loan now (exiting the wholesale market), although I guess there’d be another bank.

• 57 Ubersalad // Apr 11, 2008 at 5:36 pm

  mortgage rate is quite volatile, even 1 week could make huge difference.

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