Countless ex-mortgage bankers have switched careers and gone into the exciting world of farm-raised sea monkeys. (Not to be confused with wild sea monkeys.) http://www.sea-monkey.com/ It is comforting to know that not only are they nowhere near extinction, but apparently thriving. Now, if I could only find the phone number for that “Raise minks at home and make big bucks!” business.

Who is buying who? The banking landscape could be dramatically different by year end. The credit crisis and write downs have caused a number of surprises. The latest of interest is that the stock market value of Wells Fargo now exceeds that of Citigroup. This reflects well on Wells, but has led to a renewed game of, “Will Wells buy another company like Wachovia or SunTrust? Or will Citi or Chase buy someone like WaMu?”

Merrill Lynch reported a wider-than-estimated second-quarter loss yesterday on $9.7 billion of credit-market write downs. The net loss of $4.65 billion exceeded the firm's $1.96 billion first-quarter loss. Merrill's charges from the credit crisis now exceed $46 billion. “Clearly the size of the loss was a surprise” said one analyst. Citigroup has posted a smaller-than-expected quarterly loss, despite some $11.7 billion of write-downs and credit losses tied to deteriorating capital markets and the slowing economy. The second-quarter net loss totaled $2.5 billion compared with a year-earlier profit of $6.23 billion. Citigroup has lost about $17.4 billion in the last three quarters and incurred more than $58 billion of write-downs and increased credit costs since the middle of 2007. Citigroup's securities and banking unit took $7.2 billion of write-downs. This included $3.5 billion tied to sub-prime mortgages and $2.4 billion related to bond insurers.

Unfortunately after the release of these earnings, the market has worsened. The 10-yr yield suddenly seems more comfortable in the 4.00-4.05% range, and mortgage prices are worse again by roughly .125 in price.

Countrywide Securities Corporation was removed from the list of primary dealers as a result of its takeover by Bank of America, leaving 19 primary dealers (the firms that deal directly with the Fed in providing liquidity to the banking system.) For those of you at home keeping score, the list of “the Primary Government Securities Dealers reporting to the Government Securities Dealers Statistics Unit of the Federal Reserve Bank of New York” are BNP Paribas Securities, Banc of America Securities, Barclays Capital, Bear Stearns, Cantor Fitzgerald, Citigroup Global Markets, Credit Suisse, Daiwa Securities, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, Greenwich Capital, HSBC, JP Morgan, Lehman Brothers, Merrill Lynch, Mizuho Securities, Morgan Stanley, and UBS.

Downey’s restrictions of 5 financed properties and DTI of 40% only apply to their FNMA programs, not their portfolio product.

What if there was no “secondary market”, and we went back to home lending the way that it was done 25 or more years ago? Let’s hope that we don’t get to that point. Money from direct lenders such as community banks, savings institutions and large commercial banks will fall short of potential demand and focus on bread-and-butter loans. Exotic loans of any kind will be completely gone. Home sellers will become active lenders, but only those who have equity, and seller financing will help some transactions. Second homes, expensive houses and certain types of investment property will be penalized and difficult to fund. Small boutique lenders will enter the business, capitalizing on market voids, funding specialized but secure niches. Investment banks will take care of unleveraged high-net-worth customers, but terms will be unfavorable so this market will further shrink. There will be no foreign participation in our mortgage market. Those that do lend will revert to back-to-basics underwriting: perfect credit, large down payments, proof of income, personal character and good family upbringing.

A suburban Jewish congregation honors its Rabbi for 25 years of service by sending him to Hawaii for a week, all expenses paid. When he walks into his hotel room, he finds a beautiful nude woman in the bed.
She greets the Rabbi with, “Hi, Rabbi, I'm a little something extra that the President of the Temple arranged for you.”
The Rabbi is incensed. He picks up the phone, calls the President of the Temple and shouts, “Greenblatt, what were you thinking? Where is your respect? I am the moral leader of our religious community! I am very angry with you and you have not heard the end of this.”
Hearing this, the naked woman gets up and starts to get dressed.
The Rabbi turns to her and asks, “Where are you going? I'm not angry with you."

Rob