L.A. Times: Loan turmoil closes doors for buyers - "I knew I was in trouble the very next month"

Unless something has changed, it is my understanding that Susan Bies is a soon-to-be ex-Federal Reserve governor, that she has resigned and is not even serving out her full term, which was due to expire in 2012. She was considered THE resident expert on banking and risk management. Around February 20, she was hyping about 93% of the mortgage market as being "problem-free" and that she could "sleep at night."

That's what they always do, try to minimize the extent of the problem when something blows up, don't they? Susan Bies may be saying something a little different now, according to this March 10 article by Annette Haddad and Scott Reckard.

Countrywide Financial in Calabasas announced on Friday it would no longer make 100% ARM loans to customers with low credit scores and undocumented income. Ditto WMC Mortgage in Burbank.

Now Susan Bies says this is "the beginning" of a wave of troubles the central bank is monitoring, though she claims that the Fed has not yet seen contagion into the Alt-A tier.

How is this affecting pending escrows? "You don't know how frustrating it is to have a client who was approved for a loan 60 days ago, and then the bank calls to say it won't honor the deal", according a loan officer for United Pacific Mortgage in West Los Angeles. We're "back to real credit standards" says another in Newport Beach.

Sub-prime loans were just 7.4% of all mortgages in 2002 ($213 billion nationally). This escalated to 21.3% ($665 billion) in 2005. In 2006 this was 21.5%, $640 billion. Apparently, as home sales began to slide, credit standards were loosened even more in desperate attempts to sell loans. Now some lenders have as much as 20% of their loans already in some kind of trouble.

Wall Street until recently has been buying these shaky loans and bundling them as mortgage-backed bonds for your mutual fund portfolios. Makes you feel great, doesn't it? That's one of the reasons why I say yes, this is a national housing bubble and that's why I keep as little money as possible in any income/money market mutual funds. Wall Street is trying to get lenders to buy back these loans - good luck guys! I have a feeling Joe Schmoe mutual fund mortgage bond holder will be left holding much of this bag.

According to Bear, Stearns, as many as 1.1 million people could be closed out of the housing market this year.

Martin Weiss, writer of Safe Money Report and the Money and Market e-letter, believes the contagion has already spread to the Alt-A (medium quality) tier, and may hit major investment banks. He's been screaming about this for well over a year.

Is Susan Bies in fact stepping down early? Does the Atlanta bank have a new president? And is the Chicago Fed president stepping down this year? And is the Boston Fed president also stepping down this year? Why all these sudden resignations at the Fed, if their monetary policy has supposedly been putting us on such sure footing?