Golden West CEO is "Scared to Death"

Golden West , the aggressive housing lender, has been on my short radar for some time.  So far, I haven't pulled the trigger, and don't be surprised if it goes down 75% and I still haven't had the guts.  Well, now there's at least blood for the sharks to smell:

McQuade's comments about new-style mortgage loans contrast with those made earlier by Herbert Sandler, co-chief executive of Oakland, California's Golden West Financial Corp.,  the No. 2 U.S. savings and loan. Golden West specializes in  ARMs, which comprise about 99 percent of its mortgage lending.

Sandler fears lenders chasing market share are too willing to skimp on paperwork, or accept generous appraisals on home values.

"I'm scared to death" about riskier loans, he said. "There's been too rapid (price) appreciation in many areas of the country, which typically results in problems."

This is the same guy, who on CNBC, claimed that GDW would thrive in any environment, and didn't get what Wall St. was worried about.  Now, it seems, he gets it.

Comments

[Greg Newton]

Interesting...especially as (Ursine) Doug Kass on TheStreet.com's Street Insight has been pretty much a permabull on GDW - it was a Kass Katch on Aug-15 - despite his heavily bearish view on homebuilders, mortgage companies, etc etc.

I guess that's why they call it a market.

[edge trader]

Be careful about that short. GDW pioneered the "crazy" and recently imitated mortgage you are talking about. Sandler was commenting on CNBC about the copycats who have copied everything about that mortgage but the solid underwriting and sound appraisals. A better short would be their competitors who aren't booking as solid a loan portfolio.

[The Stalwart]

Do you have any names in mind?

[edge trader]

Shorting one of them is not as simple as it sounds - it depends on the time horizon. Countrywide, Washington Mutual, and Indymac compete with them. GDW has chosen (as always) to book premium quality credit and collateral loans at the expense of market share. Their competitors go for volume, not quality. If your horizon is short term, you might be ok shorting GDW for a quarter (I wouldn't try it), but don't expect the 75% move in your post. Eventually, in my opinion, the lesser underwriting of the others will catch up with them so that trade might have the potential to deliver a big downwards move, but you might have to pop a few tums through an upswing first if and when the Fed hits the brakes. You really have to ask yourself what type of contrarian you really are.