The Sanders Polynomial or Why “Esto se va a poner de la chingada”

rcwhalen's picture

When people ask me how I have come to understand some of the mortgage mess, my reply is simply that I have good teachers.  Despite the Internet, there is no replacement for  conversation as the means for creating understanding and focus in both our personal and national life.  And conversation is more than merely blurting out electronically and unilaterally, but is a true transaction, where bits of information are passed back and forth in a symmetrical fashion, increasing the aggregate knowledge on both sides.

I am fortunate to participate in such a continuing conversation with a number of mortgage market observers, attorneys and operators, people who know the issue from the inside out legally and financially.  Most don’t want their names mentioned, but I owe them the same debt any student owes a teacher -- and the obligation to replicate the process for the next wave of students.

Last week a lot of people became acquainted with some of the nuances of loan servicing, little details that connect some of the biggest banks with trillions of dollars worth of exposure now held by Fannie Mae and Freddie Mac.  When you saw several banks spend a large part of their earnings conference calls on loan servicing, you know something is amiss. I wrote a post on Reuters about the Depression era legal evolution of the rights of note holders that will interest the ZH community:

Part of the issue facing lender/servicers such as Bank of America (BAC) is that the market for housing in the U.S. is still on a downward trajectory in terms of prices and transaction volumes.  With the GSEs, FDIC and major banks all selling into a falling market and the percentage of involuntary sales now over half of all sales nationwide, loss given default is headed towards 100% -- or more should the lender decide to retain the property for disposal.

The chart below is from my friend Anthony Sanders, Distinguished Professor of Real Estate Finance at George Mason University, and shows the MBA Purchase Index vs. the FNM 30-year MBS.   The solid line is the polynomial or curve for the MBA Index, suggesting that home purchases are in the midst of a long-term correction from a peak in about 2005-2006.

Sanders Polynomial of MBA Home Purchase Index

Source: Anthony Sanders/GMU

Draw a horizontal line from where the curve intersects the year 2000 straight across the chart and me thinks you've got the new baseline for the U.S. housing sector.  Or 2010?  And remember that housing is not seasonal.

Long-time readers of our work at Institutional Risk Analytics will recall that the peak period for housing sales volumes around 2006 is the same time frame when Washington Mutual peaked in terms of assets and began to shrink.  This is also roughly the same time when the credit card and other consumer debt portfolios in the banking industry also peaked and began to shrink.  Indeed it is “shrinkage” in the 19th Century view of the term that is the operative trend today.

The backlog of foreclosures that have not yet cleared in terms of title continues to grow, even as the industry ramps up operationally to deal with the surge.  The BAC earnings call this week provides considerable color on the timing of the peak of the operational build in terms of servicing capacity 3-4 quarters out -- at a minimum.

A good bit of what was said on the BAC call this week was contradictory and reflects confusion by BAC management.  This confusion is understandable given the dramatic situation facing BAC and the likelihood that its growing list of creditors may soon force the issue.  Part of the reason you heard BAC management spend so much time talking about loan servicing issues is the need to manage expectations of investors.

Speaking of good perception management, big high five to the folks at the Fed for timing the announcement of the litigation against BAC by the FRBNY regarding loan repurchases for the same day as the BAC earnings call.   Part of the reason for the lack of sensitivity is due to an ongoing house cleaning at the Fed Board of Governors in Washington .  Ponder this insider view:

“The staff at the BOG is in total disarray.  Numerous long-timers have left due to the stiff arm of [Governor Dan] Tarullo and his executioner - Pat Parkinson [See “I am Superman” paper for particulars on Parkinson as an advocate for the TBTF banks].  Everyone that was at the BOG and engaged during the crisis is gone.  The NY FRB is going to get bigger and badder as a result,  but then they’ve always been the Sun around which all the other banks (and the Board) revolve.  So now we have Geithner as UST Sec, ‘copter Benjamin at FRB BOG, and Dudley “who?” at the FRBNY.  Not a stellar lineup.  Thank goodness Lawrence is now gone…he can’t do more damage except pollute the minds of the kids in Cambridge.”

When people ask what to expect in the large bank,  GSE and real estate sectors in 2011, we say that the day of reckoning put off by not restructuring Countrywide, Bear, Merrill, Wachovia et al two years ago is now coming due.  The operational and financial reality of insolvency can only be put off for so long.  Or to refer to the immortal words of Joaquin “el chapo” Guzman, spoken after the mistaken 1993 killing of Cardinal Posadas at the Guadalajara airport:  “Esto se va a poner de la chingada” *

* “Things are going to get really fucked now.”  See Alma Guillermoprieto, “The Murderers of Mexico” October 28, 2010, NY Review of Books,

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non-anon's picture

and the beat goes on.

TheMonetaryRed's picture

The bad guys in the housing bust are not the banks who must foreclose on homes, but the politicians in both political parties who used reckless housing policies to further their personal interests.

Why is anyone still reading this guy?

He's a Bankster shill.

Here's something he wrote in August, 2008:

Strategic acquirers are well aware of the value locked-up inside both sides of the balance sheet at strong retail banking franchises such as DSL. While the continued mark-to-market self-immolation still has much of the Street distracted, there is a growing crowd of investors evaluating bank valuations from Reykjavik to DSL's home in Newport Beach, CA, down the road from IRA's HQ.  In both cases, hysteria and media hype may be obscuring value.

Like I said, a bank shill. 

He knows a lot of things, but apparently cannot order them into a truth-telling rhetorical machine. 

greased up deaf guy's picture

whalen is a bankster shill? really? he's the ONLY person out there right now saying "bank america" will ultimately go into receivership. he must've missed the memo with all of the updated pro-bankster talking points.

mkkby's picture

Chris Whalen has been writing idiocy like this for years now. When will he realize con-gress will fix this with legislation after the election? The banks will be bailed out with what ever it takes. Just look at your history. The US is owned by the feral reserve and IMF.

A_MacLaren's picture

Welcome back Chris, your straightman witicisms and cutting analysis have been missed.

I especially like the insider's view of what's going on in the FRS-BOG. 

So with disarray inside the BOG, is the best response to duck and cover?

Will it help?

Tapeworm's picture

“The staff at the BOG is in total disarray.  Numerous long-timers have left due to the stiff arm of [Governor Dan] Tarullo and his executioner - Pat Parkinson [See “I am Superman” paper for particulars on Parkinson as an advocate for the TBTF banks].


bad link

Good link here:

covert's picture

any speculations about the sharia influence of the future of the morgage business?


apberusdisvet's picture

The real question of the day is how the banksters and the FED going to rescue BofA (and probably JPM) by the most non-transparent means possible.

Rasna's picture

I love this post.

Short concise paragraphs that immediately get to the point and transition to the next.

Very good Chris.  I follow your writings and interviews all the time.  If ever we need a bright light shining into dark corners, it is now and you do it expertly with ease.


assumptionblindness's picture

Chris, how about a Presidential run in 2012?  We could use someone in the White House who is honest, truthful and willing to accept that nasty things have to happen if this country is to be saved from the 'cancer' (your term) that is spreading on and off of balance sheets at our largest banks/GSEs/Federal Reserve/Federal Government.  Thank you for continuing to bring attention to an issue which gets little coverage in the MSM.

Oracle of Kypseli's picture

I am afraid that it is too late for an honest man in the white-house, we need several honest men in congress and that may take years. Besides, the corruption is so deep that people may start disappearing, get hit by cars, drown in their hot tubs or suddenly quit. 

At this moment life is worth between $50 for a nobody to $20K for a professional job against somebody big. (The TBTF bankers spend that much for just fuel in their yachts in a weekend.)

For a quick turnaround, pray for a military coup. (Three years ago, this would have been unthinkable.)

i-dog's picture

Since the banking community deliberately created this mess (evidenced by them signing ninja loans, then betting against the homeowners with CDSs and hiding the ownership trail via MERS), I'm sure they already have their exit strategy in mind. No doubt it involves the usual taxpayer bailout, but what else is in their true ulterior motive?

BTW, there are apparently cases where the lender made $9 million on the CDS over a $300k defaulted loan!! A 30:1 bet accepted on a ninja with 9:4 ON odds of failing. Nice work if you can arrange it!

lynnybee's picture

i'm not as savy as the rest of you guys on ZEROHEDGE / still very much a "learner".    & i do not know SPANISH, so, i put “Esto se va a poner de la chingada”  into GOOGLE TRANSLATE & got :    THIS IS GOING TO BE OF A BITCH.   


Oracle of Kypseli's picture

The only place you can get the real meaning of ths expression, is in the streets of Guadalajara or the "Urban Dictionary" If you are a lady, you are warned not to dare check.

A_MacLaren's picture

Google is too polite. 

The Spanish word for bitch is Puta.  Do you see that anywhere in the sentence?

Chingada has a meaning that Google won't help you with.  Except to apply it to you.

Montgomery Burns's picture

Puta means whore, bitch is a perra. (a female dog)

ATG's picture

ie the F word past participle

Johnny Yuma's picture

Great post Chris! What about the talk of a law being created to shuffle all of this under the rug? Maybe that would help from a legal aspect but doubt it would erase the losses.

tom a taxpayer's picture

This Halloween, Ben Bernanke will dress as Joaquin “el chapo” Guzman. He will be accompanied by the FOMC dressed as the Sinaloan drug/money laundering cartel.

This Holloween promises to be the scariest Halloween in America's history as Ben and FOMC gang knock on America's door and scream "Trick or Treat?"

chopper read's picture

a trick disguised as a treat. 

...raising the prices on children's halloween candy is a new low even for The Fed.  

MarkTwainsMustache's picture

"Esto se va a poner de la chingada”

Brian Moynihan's new catch phrase

Dollar Bill Hiccup's picture

I thought it was attributed to Bozo the Clown, as per WB7s posting the other day ...

ATG's picture

Re a possible 2000 price base for the real estate decline, Sir John Templeton thought all assets eventually correct the amount they are financed.

Is BAC the next BS or LEH?

Re the hideous photoshopped Angle ads to the left and right on ZH, worth noting the Patriot Majority is a 527 funded by Soros, Hefner, American Barrick and unions, certainly not a patriot majority

williambanzai7's picture

Like we say in the sewer, time and tide wait for no man. 

Ed Norton, The Honeymooners