With all the finger pointing going on, and consistent with our concern that incentives contributed to the clusterfuck that is the mortgage industry today, we decided to take a quick look at fees to see what kind of cash was flowing around in the business. A small, back of the napkin guess has become quite a large (if somewhat simplistic) model so I thought we'd share it with you and see what you had to say.
In summary, our incomplete and work-in-progress calculations figure for something like $2 trillion in fees flowing to various parties in the real-estate, mortgage, securitization and securitization^2 businesses between 2003 and mid-2008. That's some serious swag, and you don't have to look very far to see why no one was in much of a hurray to shut any of it down or to rock the boat.
Of course, we've made some pretty thick assumptions, particularly where management and underwriting fees come in with respect to the securitization layers of the industry. As usual, we are enlisting the help of the savviest readers on the street (Main or Wall). Browse on through the model, particularly the assumptions sheet, and if you see something you know is off, and if you can pitch us a decent source for better figures, we'll tweak it right up. Find something spectacular and we will buy you lunch from our newly minted Dealbreaker Swag Lunch Fund.
Or, if you are a Google Docs user yourself, take a copy for yourself and play with it. We'd love to see what you come up with. If you'd like to jump into a copy and do some collaborating, send me a request for an invitation at ep at dealbreaker dot com and I'll add you as a collaborator.
Edits:
3:47 pm: MBS underwriting fee adjusted to 1.25% (need a better source here but this might be close).
Posted by guest , Sep 25, 2008 3:19PM
follow the path to find a glory hole with buffett's big fat head at other side.
Posted by guest , Sep 25, 2008 3:20PM
Too long, didn't read.
Posted by onetwo , Sep 25, 2008 3:23PM
Who does number two work for!
Posted by guest , Sep 25, 2008 3:23PM
Back of the envelope: PV of a mortgage works out to be about 103/104, so you can have that 3-4% fee distributed between all parties - more than that, and everyone is losing money. MBS underwriting fee you are way off, divide by 20.
Posted by a dead horse , Sep 25, 2008 3:26PM
What is going on with FNM? Stock is all over the place...
Posted by guest , Sep 25, 2008 3:26PM
#2 works for Goldman
Posted by guest , Sep 25, 2008 3:27PM
@3
That's right! You show that turd who's boss!!
Posted by guest , Sep 25, 2008 3:28PM
What is the "vintage multiple"?
Posted by ep , Sep 25, 2008 3:31PM
Vintage multiple was my crude way of capturing recurring fees.
A vintage 2003 CDO will spin off management fees for 2003, 2004, 2005, 2006, 2007, 2008, so it gets a 6x vintage multiple. It's a pain to do cascades in Google Docs or I would have done it that way.
Posted by guest , Sep 25, 2008 3:34PM
EP - forgot about added audit fees that auditors would charge to opine on the accounting of these securities.
Posted by guest , Sep 25, 2008 3:36PM
You can all just "Follow that Money" and watch as it slides right into our depleted Executive Bonus Pool. What a country. I love America.
Robert Horwats
International Vice Chairman
Goldman Sachs Group
Posted by guest , Sep 25, 2008 3:37PM
@11...fuck off ya wanker.
Posted by guest , Sep 25, 2008 3:37PM
But the boys at CFC spent at least $1 trillion on hookers, blow and golf. Your model is flawed if it leaves out those expenses.
Posted by ep , Sep 25, 2008 3:38PM
"EP - forgot about added audit fees that auditors would charge to opine on the accounting of these securities."
True! Have a decent figure I can use for this, and a place to cite it?
Posted by guest , Sep 25, 2008 3:40PM
Hey @ 12. Why don't you get a life you loser. I bet you are a Clay Aiken fan.
Posted by guest , Sep 25, 2008 3:44PM
I miss 2005
Posted by guest , Sep 25, 2008 3:45PM
hey #15 you sound like a real wanker.
Posted by guest , Sep 25, 2008 3:45PM
hey #15 you sound like a real wanker.
Posted by guest , Sep 25, 2008 3:48PM
Ep - @10 here,
Proxy stmt have audit fees listed but those tricky accounts don't have fees listed in proxies specifying how much they billed for these services just total audit fees.
If someone can give you access to AuditAnalytics service you may be able to plug that in. Given the complexity of these securities and the tentacles they had to balance sheets and the risk of opining on them and the valuations it was not your standard 1040 return filing.
Anyone work in structured finance group of a Big 4 here care to chime in?
Posted by ep , Sep 25, 2008 3:53PM
"Proxy stmt have audit fees listed but those tricky accounts don't have fees listed in proxies specifying how much they billed for these services just total audit fees."
I've added a line item for those under the securitization^2 section. When we get some data I will plug it in.
Posted by guest , Sep 25, 2008 4:01PM
CMO underwriting fees also way too high.
Posted by ep , Sep 25, 2008 4:03PM
"CMO underwriting fees also way too high."
Probably. How about a source for a better number?
Posted by guest , Sep 25, 2008 4:09PM
Hey @ 17 & 18 nice double post you idiot. What, your first day on the computer?
Posted by guest , Sep 25, 2008 4:09PM
brokerage fees way too low
"While
comprehensive data do not exist, REAL Trends, an industry source,
estimates that in 2004 consumers paid about $61 billion in real estate
brokerage fees related to home sales, up from approximately $43 billion in
2000."
http://www.gao.gov/new.items/d05947.pdf.
Posted by guest , Sep 25, 2008 4:09PM
"Related" is spelled wrong
Posted by shalimar , Sep 25, 2008 4:11PM
Are incentives the only problem?
Seems that people talk about the size, smell, and color of the cheese rather than question whether these rats should've been offered the money in the first place.
So far, no one's pointed a finger at the miscreants at the top of the asset waterfall who financed this system --- pension funds, mutuals, and other undiscriminating "asset allocaters" who bought the shit without understanding it.
True, the middle-people have been well-paid, and, on occasion, fraudulent. However the same applies to advertising and most consumer product industries. The banks created products which were bought by mismanagers who decided to buy assets generating $10 for $1000 (after you factor in all the layers of leverage).
The point:
The failure of a system depends in part on its incentive structure (and more on the quality of the people). The magnitude of the damage depends on how much you allocate to it. The allocation choice wasn't made by the i-bankers.
(This is not intended to be a defense of bankers. They're sheep, for the most part, but they have their place)
Posted by Phobos , Sep 25, 2008 4:15PM
If we're looking at incentive based cost structure we have to consider the bank (retail) origination fees for "spec" house building etc.
We have -> mortgage brokers included, but for the first time in US history (pretty much) we saw a considerable upsurge in the market on "spec" based houses (houses not build FOR someone, but intended to be sold later to someone) -- we need to include those numbers as they were the secondary incentive for building.
Posted by guest , Sep 25, 2008 4:16PM
More finger pointing going on than Sally Struthers in a donut shop.
Posted by ep , Sep 25, 2008 4:17PM
"brokerage fees way too low"
Indeed. Probably because its computing off of the borrowed amount, not purchase price. (Boosting by 20% for downpayment delta gets us to $56 billion, which is closer but I suppose the "purist" likes my figure better, because its related to the actual mortgage part, but if we could find good percentage figures that'd be better. Anyone have a source for total residential real estate transactions for 2004? We could just divide assuming the GAO figure is residential only. (It seems so).
Posted by ep , Sep 25, 2008 4:18PM
""Related" is spelled wrong"
Thanks!
Posted by guest , Sep 25, 2008 4:18PM
@ 13 - Fell off my chair. Thanks.
Posted by guest , Sep 25, 2008 4:19PM
you're fees should be in % terms. a bank will make between .5% and 10% of the total size of a securitization depending mainly on the type of deal(MBS, CMBS, CDO^2) and the carry of interest and capital appreciation earned on collateral between origination and deal issuance. the carry is what drove $2-3B CMBS deals to earn 8-12% in the heyday.
Posted by guest , Sep 25, 2008 4:21PM
i concur, thanks for the quick explanation ep
Posted by ep , Sep 25, 2008 4:21PM
"If we're looking at incentive based cost structure we have to consider the bank (retail) origination fees for "spec" house building etc."
I like it. Anyone have figures?
Posted by Phobos , Sep 25, 2008 4:22PM
Sorry, follow up post:
For example, the banks (retail) made two loans:
1) to the construction people to build the houses, because they didn't have capital.
2) to the people to buy the houses.
1st loan gets paid off by issuance of the second loan, but the bank profits in both instances: thus it is in the banks best interest to mortgage the house being sold. Commission are paid to the "Commercial Loan Officer" in accordance with the 1st loan, and to the "Mortgage Loan Officer" in response to the second loan.
This in turn, has created another issue for banks (retail) in that the loans originated for "Commercial" properties has not been paid back, because the Construction companies in question have gone under.
Posted by guest , Sep 25, 2008 4:26PM
New T-Shirt Idea:
"Warren Buffet OWNS Goldman Sachs"
Posted by guest , Sep 25, 2008 4:27PM
$400,000 total wall street executive compensation cap
LOL no more brioni suits and $5000 trips to the strip clubs.
Thanks dubya!
Posted by chernevik , Sep 25, 2008 4:28PM
Do brokerage fees include "points" paid at closing by homebuyers? If not, how much were these and who got them? (These would have to be adjusted. They were used to "buy down" the rate, so part of their value went to covering any gap between the amount lent and price received for the loan from securitizers.)
I think these were a pretty rich stream for the subprime brokers.
Posted by guest , Sep 25, 2008 4:35PM
I'm the CEO of a hedge fund. What is a compensation cap?
Posted by guest , Sep 25, 2008 4:38PM
@39 yea I saw your topless shot at pdiddy's pool party.
Posted by guest , Sep 25, 2008 4:40PM
@37...pigs get fat, HOGS get slaughtered.
Posted by Phobos , Sep 25, 2008 4:44PM
EP:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSRLR4mzz_QA&refer=home
Base numbers @ 1.1MM loans issued per year across time range.
I would base the avg cost per house @ 275k to consumers, take %20 off of that to base the construction costs, so about 230k. Originate loans from bank at 30yr T price + 150 bps, over avg life of loan 12 months (fair, assuming 6 month building and 6 month time to sell) -- I would trail 2007 and 2008 down by 50% as loans stopped being made in these years. Commercial Bankers probably got to keep 20 bps on the loans.
This all very rough.
Posted by guest , Sep 25, 2008 4:46PM
I demand to be paid $1.00 everytime someone here uses the phrase "..pigs get fat and hogs get slaughtered..."
~Mortimer Duke
Managing Partner
Duke & Duke
Philadelphia, PA
Posted by guest , Sep 25, 2008 4:49PM
Louis Winthorpe III
"I had the most absurd nightmare. I was poor and no one liked me. I lost my job, I lost my house, Penelope hated me and it was all because of this terrible, awful Negro."
Posted by Anal_yst , Sep 25, 2008 4:49PM
sell mortimer, sell!!!!
Posted by guest , Sep 25, 2008 4:53PM
@28 - post of the day
Posted by ep , Sep 25, 2008 4:54PM
"you're fees should be in % terms."
See the assumptions sheet.
"a bank will make between .5% and 10% of the total size of a securitization depending mainly on the type of deal(MBS, CMBS, CDO^2) and the carry of interest and capital appreciation earned on collateral between origination and deal issuance. the carry is what drove $2-3B CMBS deals to earn 8-12% in the heyday."
I don't really want put capital gains in. That feels like a different model, and it requires a rather complex analysis of returns for a series of asset classes.
Posted by guest , Sep 25, 2008 4:54PM
When they brought you in here and booked you was cryin' like a pussy - YEAH...
Posted by guest , Sep 25, 2008 4:56PM
For your assumptions in the Securitization category:
- Underwriting fees were at most 0.25% (divided up amongst all participating underwriters)
- Deal costs (including rating agency fees, lawyers, accountants, printing, etc.) were at most 0.10%. Rating agencies were paid a flat fee per securitization, by the way.
Posted by ep , Sep 25, 2008 4:57PM
"For your assumptions in the Securitization category:
- Underwriting fees were at most 0.25% (divided up amongst all participating underwriters)
- Deal costs (including rating agency fees, lawyers, accountants, printing, etc.) were at most 0.10%. Rating agencies were paid a flat fee per securitization, by the way."
That sounds better on all counts. Anything I can cite?
Posted by StupidEquityGuy , Sep 25, 2008 4:59PM
"See, you know the way a bailout works? Here's the way a bailout works. A failed president and a failed Congress invest $700 billion of your money in failed businesses. Believe me, this can't fail." Jay Leno
Posted by guest , Sep 25, 2008 5:01PM
Wake up, will ya pal? If you're not inside, you're outside, OK? And I'm not talking a $400,000 a year working Wall Street stiff flying first class and being comfortable, I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars buddy. A player, or nothing.
Posted by guest , Sep 25, 2008 5:02PM
Subprime MBS gross U/W fee was 25bps not 5pts. Rating agency fee was approx 4bps but depends on how many firms rated the deal.
You're also missing fees for the servicer, trustee, due diligence firm, lawyers, accountants, and printer.
Pull a prospectus from sec.gov and you can find some of this.
Posted by guest , Sep 25, 2008 5:02PM
For some details on how they are stealing our money read:
http://yourmortgageoryourlife.wordpress.com/2008/09/25/paulson-bush-and-the-grifters-the-manufacturing-of-a-crisis/
Posted by guest , Sep 25, 2008 5:02PM
For some details on how they are stealing our money read:
http://yourmortgageoryourlife.wordpress.com/2008/09/25/paulson-bush-and-the-grifters-the-manufacturing-of-a-crisis/
Posted by guest , Sep 25, 2008 5:03PM
Shelby just came out of the White House meeting to tell reporters there is "no agreement" in congress on the bailout.
per CNN
Posted by ep , Sep 25, 2008 5:03PM
"Subprime MBS gross U/W fee was 25bps not 5pts. Rating agency fee was approx 4bps but depends on how many firms rated the deal.
You're also missing fees for the servicer, trustee, due diligence firm, lawyers, accountants, and printer."
I probably need the average underwriting fee. Otherwise I can only apply the fee to a percentage of all MBS.
Any citations on the fees you are (quite rightly) including?
Posted by guest , Sep 25, 2008 5:04PM
For some details on how they are stealing our money read:
http://yourmortgageoryourlife.wordpress.com/2008/09/25/paulson-bush-and-the-grifters-the-manufacturing-of-a-crisis/
Posted by guest , Sep 25, 2008 5:08PM
this the dumbest exercise i've ever heard in my life. Those fees were all paid in dollars. By inflating the currency they're all being wiped out anyway. Stop complaining and get flat relative to the dollar. You're all just idiots, whining because your long dollar trade is moving against you.
Posted by guest , Sep 25, 2008 5:08PM
"For your assumptions in the Securitization category:
- Underwriting fees were at most 0.25% (divided up amongst all participating underwriters)
- Deal costs (including rating agency fees, lawyers, accountants, printing, etc.) were at most 0.10%. Rating agencies were paid a flat fee per securitization, by the way."
That sounds better on all counts. Anything I can cite?
Unfortunately, no. Not even prospectuses on sec.gov will have much on this. This was obviously not widely publicized.
Agreed with #53 - missing servicing fees (anywhere b/n 0.25% and 0.50% for primary servicing, and 0.05% to 0.08% for master servicing). Maybe another 0.1% also for any derivatives "smoke-and-mirrors", and that should be it.
Posted by guest , Sep 25, 2008 5:12PM
ep - SEC filings for prospectus; similar to this but convert to %; u can just source pretty reliable
http://books.google.com/books?id=S4_TQd9vdDIC&pg=RA1-PA525&lpg=RA1-PA525&dq=typical+securitization+fee+davidson&source=web&ots=vSNHDqdm5g&sig=MHMfmwIRQcTGyzAtBzZ52U1RXDo&hl=en&sa=X&oi=book_result&resnum=1&ct=result
Posted by guest , Sep 25, 2008 5:18PM
Einhorn + Ackman...should be fun: https://www.cjh.org/pdfs/2008FinanceInvitation.pdf
Posted by guest , Sep 25, 2008 5:20PM
If a Big 4 did the valuation for a 15+ yr complex derivative it could cost several thou per security. Our firm is charging 1k for some with simple terms, short maturity
Posted by guest , Sep 25, 2008 5:22PM
If a Big 4 did the valuation for a 15+ yr complex derivative it could cost several thou per security. Our firm is charging 1k for some with simple terms, short maturity
Posted by guest , Sep 25, 2008 5:24PM
player@#52 = Douchebag.
If the want to stay with their firms and/or keep out of prison, they may want to reconsider the $400k. They can live large off some of that "liquid" for awhile.
The Guy from Delaware
Posted by guest , Sep 25, 2008 5:37PM
Thanks for the leg work, but I think your target is slightly off. This crisis is occurring not because they collateralize this paper but because they warehouse it. Buy securities that yield 6.5% when your cost of capital is 2% on a couple hundred billion and you are talking real money.
Of course, if they didn't buy this crap, no one else would and the ultimate fees would have been much lower.
Posted by guest , Sep 25, 2008 6:25PM
@65 - you don't go to movies much, do you?
Posted by guest , Sep 25, 2008 8:55PM
TGFD - you dope!
That was a famous line that Gordon Gekco spoke to Bud Fox in the FICTIONAL movie from 1987 "WALL STREET".
Posted by guest , Sep 25, 2008 10:48PM
@#67/68...
I didn't know. Which part? I thought I was being creative. So much for my original thoughts. Everything must have already been said by someone before, somewhere. Who knew???
The Guy from Delaware
Posted by guest , Sep 25, 2008 10:50PM
I love how TGFD is so unabashedly and unapolegetically clueless.
Posted by march222 , Sep 25, 2008 11:27PM
@28 "More finger pointing going on than Sally Struthers in a donut shop."
These words will be added to the greatest qoutes ever...
Posted by StupidEquityGuy , Sep 25, 2008 11:32PM
Total borrowing at the discount window, including both depository institutions and primary dealers, more than doubled to a record $262.34 billion Wednesday from a previous record $121.29 billion in the prior week, the Fed said in its weekly report Thursday. Total average daily borrowing also jumped to $187.75 billion from a record $47.97 billion in the prior week.
Lending through the primary dealer credit facility, created in March for investment banks in the wake of the near-collapse of Bear Stearns, reached a new record of $105.66 billion as of Wednesday after hitting $59.78 billion in the previous week to end a weeks-long stretch in which investment banks didn't touch the facility. The figure includes loans made to broker-dealers Goldman Sachs, Morgan Stanley and Merrill Lynch as well as their U.K. counterparts as part of an announcement the Fed made over the weekend.
http://online.wsj.com/article/SB122237806611776365.html?mod=googlenews_wsj
Posted by guest , Sep 26, 2008 9:46AM
yeah..i shot this spreadsheet to a friend of mine saying, 'i really do love these boys' and then he fires one back saying equity private is a chick! go ahead and break down that gender barrier! - bet you're still the 'note-taker' in all your meetings..a woman's worth