by Adam Tempkin
MIAMI, Oct 19 (IFR) - A spirited debate -- one moderator called it a 'rant' -- erupted at an end-of-day RMBS researchers and traders session at the ABS East conference on Tuesday over the 'moral hazard' of helping even prime borrowers get back on track in paying their mortgages through government-sanctioned principal writedowns.
One panelist, John Devaney of United Capital Markets, put the blame for much of the financial crisis squarely on the shoulders of consumers who did not live up to their obligations to pay their mortgages.
Others on the stage and in the audience said that borrowers who walk away from their mortgages are doing it only for economic reasons, and have as much right to walk away as corporations do. Recent data show that even prime borrowers are now 'strategically defaulting', meaning that they are making the conscious decision to walk away from their mortgages even though many of their households have dual incomes. This new statistic really angered Devaney.
'Politicians are sending the wrong message!' Devaney shouted with indignation. 'They are blaming the credit rating agencies and Wall Street, while it is the consumers who are walking away from their mortgages, from obligations they signed. These are dual-income households that are making 'strategic defaults' in the prime space.
'I think my parents' generation were much more responsible in living up to their commitments. I'm definitely going to teach my kids that if you have an obligation, you damn better pay it back!'
In response, an audience member, Dan Nigro, an ABS investor, said, 'Why is it okay for corporations to walk away from debt but not for people? I think this is BS!'
Another panelist, Laurie Goodman, senior managing director of RMBS research from Amherst Securities, said that for borrowers, it's not a moral decision, it's an economic decision to walk away from their mortgage.
But other audience members, disagreed, instead wholeheartedly agreeing with Devaney's take on the issue.
'John is 100% right on this,' said one front-row audience member. 'If the government sanctions principal reductions, it continues the spiral of Americans not living up to their obligations. To quote Reagan, government is not going to solve the problem -- 'government IS the problem!'
Goodman clarified, however, that most defaults are not 'pure' strategic defaults -- in other words, strategic defaults are not quite as widespread as the rest of the panelists were making them out to be.
'That being said, you shouldn't be making 100% LTV loans without recourse,' Goodman said. 'That should be obvious.'
To cap off the rather melodramatic session, moderator Glenn Costello of Wells Fargo said, 'If you think the return of securitization is going to heal consumer lending and make everything okay, you're fooling yourself. I think you should get used to 2.5% to 3.5% economic growth for the next few years.
'The days of driving an Escalade you can't afford -- that's gone.'
(Reporting by IFR senior analyst Adam Tempkin) Keywords: RMBS CONSUMERS/
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John Devaney
CEO / Head Trader of United Capital Markets
United Capital Markets was founded in 1999 by native Floridian, John Devaney. Mr. Devaney spent several years gaining valuable experience as the head trader of a regional firm, trading both ABS and CMO securities, researching structure and collateral history as a necessity to risking capital.
During a difficult period in the ABS market, Mr. Devaney saw that secondary liquidity and analysis was greatly needed, and capitalized on this opportunity in the market to establish UCM.
Beginning with limited capital, Mr. Devaney bid one bond at a time with the philosophy that every bond was one that the firm may own as a long-term investment. As many dealers stepped aside, investors soon came to recognize UCM as a knowledgeable and reliable source for much-needed liquidity in subordinate ABS notes.
As UCM has grown, Mr. Devaney has maintained his commitment to put the needs of the customers first, by handpicking professionals who are highly experienced, talented and focused on customer service. Our team of traders, analysts and sales specialists on both coasts have united in a corporate culture of teamwork, working toward the common goal of delivering unmatched customer service and satisfaction.
Mission Statement
United Capital Markets Inc. is a diversified institutional broker-dealer headquartered in Key Biscayne, FL. Founded in 2000, we are a privately owned company with offices in Key Biscayne and Los Angeles.
UCM is a well-established secondary market maker. Simply put, at UCM our mission is to understand risk, find opportunities and provide liquidity for our clients. We strive to capitalize on our unique set of business opportunities, our entrepreneurial style and seamless team culture to deliver our customers the best products, for the greatest value at the optimal time. As we continue to grow, so does our satisfied customer base.
People Oriented
UCM’s success depends on the strength of our people. Our goal is to attract and retain exceptionally talented people who share our passion for individual excellence and our commitment to teamwork. Members of the UCM team recognize that second-rate efforts and products are unacceptable and, therefore we demand excellence from each other and ourselves.
Client Oriented
We are committed to providing customer service that is equaled by none. Our clients can call any one of dozens of primary or secondary providers when they have a need. Our mission is to be the first – or only – call our clients make. We want our clients to recognize that their experience with United Capital Markets will always be focused, prompt, productive, and personal. We make it our business to provide market color, product education and to give our clients any other information they require to make informed investment decisions.
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