Published Articles
Published Articles
I have always like writing and have aspired to be a author in some format. The topic of investments is
particularly attractive from a writing standpoint as it is one of the main passions in my life. At heart, I am a
market historian, and my goal is to study historical and current market trends as well as other great investors
in order to someday become a great investor myself. To see how I am doing in this endeavor, check out my
portfolios. Along this journey, I aspire to publish industry recognized research (with respected peer
compliments being my highest honor). The following is a listing of articles I have submitted for publication
along with a brief explanation of each piece.
I have always like writing and have aspired to be a author in some format. The topic of investments is
particularly attractive from a writing standpoint as it is one of the main passions in my life. At heart, I am a
market historian, and my goal is to study historical and current market trends as well as other great investors
in order to someday become a great investor myself. To see how I am doing in this endeavor, check out my
portfolios. Along this journey, I aspire to publish industry recognized research (with respected peer
compliments being my highest honor). The following is a listing of articles I have submitted for publication
along with a brief explanation of each piece.
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2007 Articles submitted for publication
12/29/07 - "Calling Angelo - Countrywide CEO's Call For Increased Mortgage Limits Needs To Be Ignored"
Link to Word Document is here and Text Version Follows:
Calling Angelo – Countrywide CEO’s Call For Increased Mortgage Limits Needs To Be Ignored
Authored on 12/29/07
by W.T.K., CFA, CAIA
In the 12/05/07 edition of the Wall Street Journal, I read with shock Angelo Mozilo’s editorial in which he
implored Congress to temporarily raise the limits it now imposes on conventional mortgages securitized by
Fannie Mae, Freddie Mac, and FHA in order to ease the strain now permeating in the credit markets. Mr.
Mozilo opined that it was important to act now in order to stabilize the mortgage markets as the cap,
currently at $417,000, was simply too low to meet the needs of buyers in many communities across the
country! Simply put, Mr. Mozilo identified this as the current “problem” in the mortgage markets. Is this
really the problem, though, or would raising the cap simply perpetuate mortgage excesses (accentuated by
Countrywide and others) that have led us to where we are today?
To find the answer, we have to research what Mr. Mozilo conveniently failed to mention in his piece and that
is the history behind the conventional loan limits. Fannie Mae publishes a historical reference on their
website and looking at the data yields striking conclusions. To illustrate my point, I will highlight several
examples. In 1990, the conforming loan limit for a “1 Unit” first mortgage was $187,450. By 1997, the
conventional loan limit had appreciated to $214,600 for a gain of $27,150 over this time period. In percentage
terms this worked out to be a gain of 14.5%. Conversely, in 2000, the conventional loan limit stood at
$252,700 and appreciated to $417,000 by 2007 (it actually reached this level in 2006 but held steady in 2007).
In any case this works out to a nominal gain of $164,300 and on percentage terms it equates to a 65% gain
over a similar time period on a comparable basis!
From this analysis, it should be clear that the increase in conventional loan limits contributed to the
excesses in the mortgage and housing markets. With higher conventional loan limits, sellers, buyers, and
speculators were able to rely on securitization in order to generate liquidity for increasingly questionable
mortgage backed debt (as well as other asset backed debt). Purveyors of innovative first and second
mortgages like Countrywide and others accelerated the mortgage credit and housing bubbles by adding to
the liquidity for anyone who wanted to “leverage-up” knowingly or unknowingly.
As housing prices spiraled higher driven by underlying mortgage availability and affordability innocent
people seeking to own a home and pursue the American dream were sucked along for the ride. Somewhere
along the way the government or the private sector could have/should have helped with increased
regulation or tighter lending standards. Instead everyone chose to look the other way in unison as
tremendous profits were generated. It is convenient now when the boom has gone bust, that Mr. Mozilo is
calling for the government intervention especially when an increase in the loan limits would benefit his
company (Countrywide has one of the biggest mortgage exposures to the reeling California market where
many mortgages are above the conventional loan limit). The reality of the situation is Countrywide, Wall
Street, and millions of homeowners are paying the price for their own greed when they should have known
better. The innocent people that were hurt should be helped (which doesn’t mean locking them into a home
that they can’t afford when they are insolvent), but those who facilitated the excesses while earning
outsized profits in the good times should be punished in the bad times if they did not prepare their
companies properly. That is capitalism.
12/29/07 - "Calling Angelo - Countrywide CEO's Call For Increased Mortgage Limits Needs To Be Ignored"
Link to Word Document is here and Text Version Follows:
Calling Angelo – Countrywide CEO’s Call For Increased Mortgage Limits Needs To Be Ignored
Authored on 12/29/07
by W.T.K., CFA, CAIA
In the 12/05/07 edition of the Wall Street Journal, I read with shock Angelo Mozilo’s editorial in which he
implored Congress to temporarily raise the limits it now imposes on conventional mortgages securitized by
Fannie Mae, Freddie Mac, and FHA in order to ease the strain now permeating in the credit markets. Mr.
Mozilo opined that it was important to act now in order to stabilize the mortgage markets as the cap,
currently at $417,000, was simply too low to meet the needs of buyers in many communities across the
country! Simply put, Mr. Mozilo identified this as the current “problem” in the mortgage markets. Is this
really the problem, though, or would raising the cap simply perpetuate mortgage excesses (accentuated by
Countrywide and others) that have led us to where we are today?
To find the answer, we have to research what Mr. Mozilo conveniently failed to mention in his piece and that
is the history behind the conventional loan limits. Fannie Mae publishes a historical reference on their
website and looking at the data yields striking conclusions. To illustrate my point, I will highlight several
examples. In 1990, the conforming loan limit for a “1 Unit” first mortgage was $187,450. By 1997, the
conventional loan limit had appreciated to $214,600 for a gain of $27,150 over this time period. In percentage
terms this worked out to be a gain of 14.5%. Conversely, in 2000, the conventional loan limit stood at
$252,700 and appreciated to $417,000 by 2007 (it actually reached this level in 2006 but held steady in 2007).
In any case this works out to a nominal gain of $164,300 and on percentage terms it equates to a 65% gain
over a similar time period on a comparable basis!
From this analysis, it should be clear that the increase in conventional loan limits contributed to the
excesses in the mortgage and housing markets. With higher conventional loan limits, sellers, buyers, and
speculators were able to rely on securitization in order to generate liquidity for increasingly questionable
mortgage backed debt (as well as other asset backed debt). Purveyors of innovative first and second
mortgages like Countrywide and others accelerated the mortgage credit and housing bubbles by adding to
the liquidity for anyone who wanted to “leverage-up” knowingly or unknowingly.
As housing prices spiraled higher driven by underlying mortgage availability and affordability innocent
people seeking to own a home and pursue the American dream were sucked along for the ride. Somewhere
along the way the government or the private sector could have/should have helped with increased
regulation or tighter lending standards. Instead everyone chose to look the other way in unison as
tremendous profits were generated. It is convenient now when the boom has gone bust, that Mr. Mozilo is
calling for the government intervention especially when an increase in the loan limits would benefit his
company (Countrywide has one of the biggest mortgage exposures to the reeling California market where
many mortgages are above the conventional loan limit). The reality of the situation is Countrywide, Wall
Street, and millions of homeowners are paying the price for their own greed when they should have known
better. The innocent people that were hurt should be helped (which doesn’t mean locking them into a home
that they can’t afford when they are insolvent), but those who facilitated the excesses while earning
outsized profits in the good times should be punished in the bad times if they did not prepare their
companies properly. That is capitalism.