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Old 09-22-2008, 03:04 PM   #41
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There is just one part in all of this that somehow doesn't make much sense. If I were to rob a Washington Mutual branch at gunpoint and get caught, I would most certainly go to prison. If Washington Mutual robs the taxpayers through a conflict of interest (using credit rating agencies to over rate bonds) and gets caught, it gets rewarded with some of the proceeds from a $700,000,000,000 government bailout. Where is the justice in all of this?
Ah, the process doesn't work that way. I'm afraid it's a bit more complicated than WaMu doing something bad. (In describing securitization of mortgage loans in this thread, WaMu was a very poor example to use, as lenders don't purchase bonds that have securitized their loans; Doesn't make any financial sense for lenders to do that -- why not just hold the loans to maturity?)

Equally false is the notion that lenders are hi-jacking the credit rating agencies rating of the bonds that securitize mortgage loans. Maybe the underwriters (like Bear Stearns, Merill, Morgan Stanley, or Goldman) do that -- they have the biggest incentive for these securities to be rated very high.

I suggest that people who are really interested in learning how the process works should invest some time learning more about this. A good start might entail reading about the guy who pioneered widespread use of mortgage-backed securities in the 1980's. Lewis S. Ranieri: Your Mortgage Was His Bond
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Old 09-22-2008, 03:21 PM   #42
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Ah, the process doesn't work that way. I'm afraid it's a bit more complicated than WaMu doing something bad. (In describing securitization of mortgage loans in this thread, WaMu was a very poor example to use, as lenders don't purchase bonds that have securitized their loans; Doesn't make any financial sense for lenders to do that -- why not just hold the loans to maturity?)



I suggest that people who are really interesting in learning how the process works should invest some time learning more about this. A good start might entail reading about the guy who pioneered widespread use of mortgage-backed securities in the 1980's. Lewis S. Ranieri: Your Mortgage Was His Bond
Chris thanks for adding additional details and cleaning up my mistakes. I think Chris knows about this stuff, I am just an investor. I realized that my example of having WaMu holding the loans they securitization was a bad example, but it helped illustrate some of the problems of mark to market pricing. It is also important to note that almost all of the securities out there are quite a bit more complex than 100 virtually identical mortgages I proposed, which makes pricing them much more even tougher. It is a function of the current interest rate, expected future interest rate, expected maturity, expected default rate, and value of the underlying properties, with only the current interest rate known for sure and models all breaking down

I do have one question for you. The companies that service the securitization, aren't they typically banks or credit card companies? More importantly what incentives do they have for getting a good price at foreclosure?
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Old 09-22-2008, 03:54 PM   #43
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Chris thanks for adding additional details and cleaning up my mistakes. I think Chris knows about this stuff, I am just an investor. I realized that my example of having WaMu holding the loans they securitization was a bad example, but it helped illustrate some of the problems of mark to market pricing. It is also important to note that almost all of the securities out there are quite a bit more complex than 100 virtually identical mortgages I proposed, which makes pricing them much more even tougher. It is a function of the current interest rate, expected future interest rate, expected maturity, expected default rate, and value of the underlying properties, with only the current interest rate known for sure and models all breaking down

I do have one question for you. The companies that service the securitization, aren't they typically banks or credit card companies? More importantly what incentives do they have for getting a good price at foreclosure?
I have a very basic understanding from a few deals a long time ago, when some of us would hammer out the final details of a securities registration statement in a New York City financial printer's office frequently late in the evenings or the early mornings. I suppose desk-top publishing and financial software has made things very easy since then. It was funny back then as you would actually have a Phd in math from Cornell or MIT do these mathematical compliliations to establish collateral/loan levels, default risks, interest rates for the securities, etc.

Mortgage servicing rights is a very lucrative part of the business. At one time, back in the day, there were only a few big players, but banks and other entities created their own mortgage servicing subsidiaries to obtain the business, especially during the height of the S&L crisis when lots and lots of distressed assets and mortgage loan portfolios were being serviced as whole loans or securitized assets from the RTC. JE Roberts might have started out in this business. I'm clueless about today's incentives for servicers. Software has made things very easy for servicers; but you can bet that if a loan goes into foreclosure, servicers would get paid more because there's more work to be done and more professionals involved with handling that loan.
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Old 09-22-2008, 04:08 PM   #44
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Ah, the process doesn't work that way. I'm afraid it's a bit more complicated than WaMu doing something bad. (In describing securitization of mortgage loans in this thread, WaMu was a very poor example to use, as lenders don't purchase bonds that have securitized their loans; Doesn't make any financial sense for lenders to do that -- why not just hold the loans to maturity?)

Equally false is the notion that lenders are hi-jacking the credit rating agencies rating of the bonds that securitize mortgage loans. Maybe the underwriters (like Bear Stearns, Merill, Morgan Stanley, or Goldman) do that -- they have the biggest incentive for these securities to be rated very high.

I suggest that people who are really interested in learning how the process works should invest some time learning more about this. A good start might entail reading about the guy who pioneered widespread use of mortgage-backed securities in the 1980's. Lewis S. Ranieri: Your Mortgage Was His Bond


ChrisC, thanks for the clarification and the book recommendation. I am a former mortgage banker loan officer from the early 80's and am very interested in the subject. Since I've been in the business before, it's a real shocker to see what is happening these days. It used to be that only people that could afford homes, were approved for mortgage loans. My how times have changed!
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Old 09-22-2008, 10:17 PM   #45
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Read an article on Fox yesterday aftrenoon that preported that as of Thursday morning if the Fed had not interveined we were only 500 trades from completely freezing market liquidity and collapse of the economy.

Do know how much weight to give this report but it did get my attention.

:confused::confused::confused::confused::confused: :confused::confused:
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