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Investing in "junk" Mortgage backed securities
Old 04-10-2010, 12:25 PM   #1
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Investing in "junk" Mortgage backed securities

So forgive me if this has been covered, but has anyone looked into this? NPR was doing a story on people buying securities for pennies on the dollar, betting that the monthly income would last long enough before everyone in it defaulted. I would think since these things are slices of hundreds (or thousands?) of mortgages they wouldn't all fail, and this might be an interesting play. If we still believe in efficient markets (ha ha) I guess the answer would be "you get what you pay for" but I seem to remember quite a few people making some decent profits off of junk bonds after they crashed and were stigmatized. Any thoughts? Any idea how to buy these efficiently/effectively?
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Old 04-10-2010, 01:00 PM   #2
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Not sure how a retail investor would buy this stuff. Institutions and traders have been doing so and iffy mortgage backed paper has rallied tremendously off the lows. I would not be eager to chase this stuff now. Sorry. FWIW, junk is no longer a bargain, either.
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Old 04-11-2010, 10:36 AM   #3
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Dang! No get rich quick scheme there either? Thanks!
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Old 04-11-2010, 11:15 AM   #4
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I recently passed on a $750k nonperforming loan on 31 apartment units in Keizer Oregon. Starting bid was $400k. If we foreclosed and ran them and were in them under a million they would have been pretty much certain moneymakers. Did'nt bid because i couldn't get enough information on the sticky details of making it a performing loan or foreclosure. within the last year i also passed on a package of one house and three loans in Phoenix, Superior, and Ajo AZ. Those I really regret - went for $62k AIR. Stuff is out there, but it takes serious detective skills and willingness to spend investigative cash up front or a gambler's mind and clanking brass ones. Perhaps not quite the NPR junk fund sort of thing...
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Old 04-11-2010, 03:23 PM   #5
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From an NPR story a year or so ago, the guys then were visiting each loan location and putting in a lot of research. I can see where that could have a great potential for profit versus guys just buying them blind. I didn't catch the latest story.

Do the research.
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Old 04-11-2010, 05:33 PM   #6
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Originally Posted by laurence View Post
So forgive me if this has been covered, but has anyone looked into this? NPR was doing a story on people buying securities for pennies on the dollar, betting that the monthly income would last long enough before everyone in it defaulted. I would think since these things are slices of hundreds (or thousands?) of mortgages they wouldn't all fail, and this might be an interesting play. If we still believe in efficient markets (ha ha) I guess the answer would be "you get what you pay for" but I seem to remember quite a few people making some decent profits off of junk bonds after they crashed and were stigmatized. Any thoughts? Any idea how to buy these efficiently/effectively?
If you were intrigued by that NPR story, you may enjoy their Special Series "Planet Money's Toxic Asset".

Excerpt: "Planet Money is committed to following the financial crisis to the bitter end. And what better way to do that than to own a piece of it. We bought one of those things that no one wanted, one of those things that almost brought down the global economy: our very own toxic asset. This one has more than 2,000 mortgages in it. We paid $1,000, with our own money, for our piece."

Link: Planet Money's Toxic Asset : NPR
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Old 04-11-2010, 10:49 PM   #7
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Linney, that's the story I heard! Now I can follow it, thanks!
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Old 04-12-2010, 12:58 AM   #8
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I must say after hearing that story, I to wanted to own a toxic asset.

In truth when Buffett was talking about co-investing with Treasury in buying Toxic assets back in fall 08, I would have gladly given Buffett a junk of money to invest.
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Old 04-12-2010, 06:41 PM   #9
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In truth when Buffett was talking about co-investing with Treasury in buying Toxic assets back in fall 08, I would have gladly given Buffett a junk of money to invest.
Me too. Back when Berkshire Hathaway shares were selling at a split-adjusted $65.

I can't wait to see the federal govt report on the TARP funds (and sales of the shares of the companies they got in return).

I'm still looking at shares of Central Pacific Bank and trying to figure out what the heck the dumb money knows that I don't...
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Old 05-06-2010, 12:11 PM   #10
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For those filled with the spirit of adventure and needing a place to gamble but without the desire to go to Vegas here you go: Auction.com, $200 million non-performing note auction, online bidding May10-12. $100 million in notes May 24-27.

I've not bought to date. Approach with due caution. Please share your experiences and any big oogies you spot - i'm drawn but skeered.
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Old 06-20-2010, 02:10 AM   #11
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If you were intrigued by that NPR story, you may enjoy their Special Series "Planet Money's Toxic Asset".....
Link: Planet Money's Toxic Asset : NPR
Things are not going well for NPR's toxic asset.

Excerpts:
"She's not dead yet — but things are looking grim."
"Samir Noriega, a partner at NPM Capital Management, took a look at Toxie for us. He figured out that lenders forgave some of the principal on the some of the mortgages. Those are the kind of loan modifications the government's been encouraging as part of its HAMP plan, which is aimed at keeping more people in their homes and reducing the number of foreclosures"



Link to latest update: Toxie's In a Coma! : NPR

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