Smart Borrower Blog

The Decline of Franklin Bank

May 24th, 2008 @ 5:20 PM by Alden Smith

No one can really predict the way the mortgage market will go.   Many economists and analysts can crunch numbers and read predications in what the market is up to, but there are just too many factors involved to take a clear cut snapshot of what really goes on.

Case in point - Lewis Ranieri, of the small but thus far secure and prestigious Franklin Bank.   Mr. Ranieri is allegedly the father of security backed mortgages, and has been espousing the dangers in the market for some time now.   He has had a ton of speaking engagements, and expounded thoroughly on the risk of lack of transparency in the market.   To give you some idea of Mr. Ranieri’s clout, Christopher Whalen, managing director at the consulting firm Institutional Risk Analytics, said “It is a matter of faith among the risk management community that Lewis Ranieri is God - or at least knows God.   But at the moment Ranieri, who is best known as one of the founders of structured finance, is not having a lot of fun.”   Fun, indeed.

Franklin Bank has taken a huge hit in just the things he has preached against.   They were also a victim of write downs and showed losses of $66 million at the end of 2007.   Stock prices reflect the company’s problems.   They went from trading at $20 a share at the start of last year to just over $4 a share by year end.   They now trade at about .96 cents.

If a man of Ranieri’s stature and knowledge cannot hold the line and keep his house in order, I fail to see how anyone else can do so.   It is obvious that to the casual observer like me that there is a hell of a lot more going on with the mortgage mess than is either not being let known or what meets the eye.   And no matter how we look at it, we are not out of the woods yet - not by a long shot.