![]() |
|
|
|
#1 | |
|
Moderator Emeritus
![]() ![]() ![]() ![]() ![]() ![]() ![]() Join Date: Feb 2004
Location: Oahu
Posts: 15,684
|
Mortgage-backed securities: "Who buys this crap?"
Quote:
Here's their rosy sales pitch outlook on the sector: "Moreover, with declines in construction spending and new housing sales, new mortgage applications and refinancings will likely decline—thereby, creating a tighter supply and increasing their value as investments." Then they recommend a few mutual funds who invest heavily in MBSs. So I guess it's not just institutions, pensions, & hedge fund managers-- it's us, too...
__________________
* * For more info see "About Me" in my profile. |
|
|
|
|
|
|
#2 |
|
Thinks s/he gets paid by the post
![]() ![]() ![]() ![]() ![]() ![]() Join Date: Dec 2003
Posts: 4,461
|
Re: Mortgage-backed securities: "Who buys this crap?"
I've read that banks don't really shed their risk when they bundle high-risk loans into a CMO. They apparently have to make some reps about the default rate, and if defaults go higher, the bank has to buy the loans back.
|
|
|
|
|
|
#3 |
|
Give me a museum and I'll fill it. (Picasso)
Give me a forum ... ![]() ![]() ![]() ![]() ![]() ![]() ![]() Join Date: Mar 2003
Posts: 9,227
|
Re: Mortgage-backed securities: "Who buys this crap?"
Just about every bond fund in the US owns some MBS. Most of this paper is very, very high quality, typical Aaa and Aa-rated stuff. It is a way for bond fund managers to have something besides treasuries (safe, but low yielding) and corporates (less safe, but higher yelds) but which is unlikely to increase credit risk. The trade off is that you take some risk on teh exact timing of cash flows (extension/refi risk).
When a pile of mortgages is stuffed into a securitization structure, there is a hierarchy of who gets paid first. The top layers comprising most of the value are squeaky clean as far as credit quality goes. By the time you get to the bottom tranches, they can be moderately to extremely risky junk, depending on the riskiness of the underlying loans. Sometimes banks are able to sell this "B piece" or "equity tranche" off to outside investors who specialize in this sort ofthing. Sometimes they keep the B piece and hold it on their books at a small value number. The bank regulators make them treat equity tranches as toxic waste for regulatory capital purposes, so most banks don't hold much of this stuff.
__________________
“When you realize that you are one of the rare few who observe moral principles in their relationships with others, there is a temptation to sink into amorality, not out of conviction or pleasure but simply to avoid further pain, because there is no greater suffering than being an angel in hell, whereas a devil feels at home wherever he goes.” – Martin Page, How I Became Stupid |
|
|
|
|
|
#4 | |
|
Give me a museum and I'll fill it. (Picasso)
Give me a forum ... ![]() ![]() ![]() ![]() ![]() ![]() ![]() Join Date: Aug 2006
Posts: 7,364
|
Re: Mortgage-backed securities: "Who buys this crap?"
Quote:
BTW, remember all those preferreds that were issued with spooky quality high risk stuff underlying them? Wonder what happened to that party??
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:) President Obama, please know that I will continue to cling to my guns and religion........:) |
|
|
|
|
|
|
#5 |
|
Thinks s/he gets paid by the post
![]() ![]() ![]() ![]() ![]() ![]() Join Date: May 2005
Posts: 3,050
|
Re: Mortgage-backed securities: "Who buys this crap?"
Like Brewer said...
I used to work with people who did the CMOs... and some had many 100s of traunchs.... The underwriter would go out and ask investors what they wanted and would slice it up and sell them thier request... and MOST of the pool was very safe... if you have the rights to the first cash and only have 30% of the total... well, what is the likelyhood of 70% loss?? Not much.. And there are triggers... some will stop getting interest payments if there is a certain amount of losses.. and some have insurance... again.. as safe as you can get next to Treasuries.. |
|
|
|
![]() |
| Tags |
| mortgage |
| Currently Active Users Viewing This Thread: 1 (0 members and 1 guests) | |
| Thread Tools | Search this Thread |
| Display Modes | |
|
|
Similar Threads
|
||||
| Thread | Thread Starter | Forum | Replies | Last Post |
| Mortgage payments after Early Retirement | walkinwood | FIRE and Money | 19 | 04-28-2007 07:45 PM |
| Analyzing the mortgage payoff option | sgeeeee | FIRE and Money | 43 | 06-22-2005 10:29 PM |
|
Other
Social Knowledge
forum communities: Cooking Forum - Sailing Forum - Early Retirement - Airstream Trailer - Aquarium Forum - Royal Forum - Book Forum - Volkswagen Touareg Forum - Jeep Wrangler Forum - Whitewater Kayaking & Rafting Forum - Fiberglass RV Forum - RV Forum - Truck Conversion - U2 Music Forum |
|
Powered by vBulletin® Version 3.7.2
Copyright ©2000 - 2008, Jelsoft Enterprises Ltd. Search Engine Friendly URLs by vBSEO 3.2.0 |