Mortgage Industry Trends

Clueless is probably a strong word to describe the professionals that work on Wall Street. Still, I am constantly amazed how highly intelligent, hard working, super educated people can, when entrusted with billions of dollars, screw up.

Angelo Mozillo has a great quote about how misguided Wall Street is as relates to originating mortgages. He's worth tons more than me, been in the business longer than I have been alive, so I'll take his opinion as fact.

The current real estate correction is largely the result of Wall Street's ability to funnel tons of cash into the housing market. Right now, sitting in a home that is possibly (at least, as of the last appraisal done) worth twice what I paid for it 6 years ago, I'm feeling pretty good about what transpired in this Bull housing market. That feeling would certainly change if I had to sell and move.

The MarketBeat Blog over on the WSJ had a short scorecard measuring how stock analysts had done in rating Thornburg Mortgage, whose stock is down significantly (43% since 8/1).

It was a guest talking head on CNBC who said if you (the investor) don't understand the underlaying asset, you shouldn't be an investor in that fund. It seems that these stock analysts really don't understand these mortgage companies, and that begs the question, do they understand anything or any company.

I don't know if these research analysts would be allowed to do this under regulatory guideliness, but if I were covering Thornburg Mortgage, I would probably go over to my mortgage people in Fixed Income and Whole Loans and ask them- is anything trading. And when they said no, and that things were bad (bad enough to send Jim Cramer into hysterics) and likely some time away from normalizing, I might re-think my assessment of Thornburg.

I always tended to think research analysts were fairly well versed in stating the obvious. I seem to recall Harry Newton, when he was publishing Technology Investor as a magazine back during the internet bubble, had a fairly dim view of them as well, though don't let me be putting words in his mouth. But to me, this is just one more piece of evidence to support the theory that Wall Street is very good with numbers, but when those numbers are attached to real things, Wall Street has a hard time understanding the real things underneath the numbers.