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Old 02-09-2008, 07:31 AM   #41
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OK, I'm have a real difficult time connecting your premise (mortage interest deduction) with paragragh two describing the securitization scam scheme process. They bundle the loans to reduce risk and then slice them up to increase yield, but somehow, magically the risk is isolated. So it was just a game of hot potato?
There is no connection. The first paragraph is just a wry observation that most of us hate government interference except when it benefits us personally.
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Old 02-09-2008, 07:42 AM   #42
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Bundle to reduce risk in 'total' is correct...

But you can not slice them up to 'increase yield'.... you only have whatever the interest rate is on the loans to work with... you slice it up to have some safe slices at low yield and some 'risky' slice at higher yields... but overall yield has not changed...

Actually, the overall yield of the combined RMBS tranches should be lower than the overall yield of the mortgages in the pool, so that you can have an excess yield spread to serve as credit enhancement.

The alchemy of securitization is that it transmutes large chunks of subprime mortgage debt into AAA rated paper. And, in fact, the AAA rated tranches will still get paid in our current environment. It is the B rated tranches that are getting killed. But then, they receive the larger yields to compensate for that risk.
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Old 02-09-2008, 07:54 AM   #43
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Actually, the overall yield of the combined RMBS tranches should be lower than the overall yield of the mortgages in the pool, so that you can have an excess yield spread to serve as credit enhancement.

The alchemy of securitization is that it transmutes large chunks of subprime mortgage debt into AAA rated paper. And, in fact, the AAA rated tranches will still get paid in our current environment. It is the B rated tranches that are getting killed. But then, they receive the larger yields to compensate for that risk.
And to pay the trustee!!! And the servicer etc. etc..

But, they were also over collateralized by a few %.... I had one insurance trust that was over 5%... but the Z bond got any 'excess'... this (I assume) is what Merrill wrote down as worthless....
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Old 02-09-2008, 08:54 AM   #44
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While we're getting the government out of the housing finance market, why don't we go ahead and eliminate the mortgage interest deduction, which acts as a hidden government subsidy (cue anguished screams).
No anguished scream from me, even though I supposedly 'benefit' from it.

Just make it revenue neutral, and while you are at it, cut out 100,000 other tax shell-games and complex rules which lead to 'loopholes'.

-ERD50
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Old 02-09-2008, 09:12 AM   #45
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In another section of the forum, RockOn pointed out a graph that shows the history of mortgages that have been securitized.

Historical ABX Graphs
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Old 02-09-2008, 10:11 AM   #46
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..... The government could help to set the current system aright by passing laws to eliminate mortgage securitization, or at least to reign in some of the worst practices. Samclem is right that when the economic loss falls on the person who was sloppy, that person will clean up his act. However, the current separation of the origination process from the economic loss prevents this type of market driven self correction.
I don't see why the market can't self-correct on its own. There were a number of "sloppy" players, but the ultimate "investors" who bought the securities certainly deserve that adjective.

The normal market correction goes like this: If you do something stupid, you don't do it again. If you see someone else do something stupid, you don't copy them.

I don't see why we need the gov't telling them that they can't do it again.
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Old 02-09-2008, 12:01 PM   #47
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No anguished scream from me, even though I supposedly 'benefit' from it.

Just make it revenue neutral, and while you are at it, cut out 100,000 other tax shell-games and complex rules which lead to 'loopholes'.

-ERD50
It's nice to see that I'm not the only person who thinks like this.
Unfortunately, I think we are in an extremely small minority. Even the people who post here probably prefer lots of "loopholes".
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Old 02-09-2008, 01:15 PM   #48
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It's nice to see that I'm not the only person who thinks like this.
Unfortunately, I think we are in an extremely small minority. Even the people who post here probably prefer lots of "loopholes".
Actually.... no.... I would benefit if loopholes were eliminated...

Just did my taxes and pay WAY to much... but my percent has gone down from a high of 25.3% a few years back to 22.8% the last few years to only 18.5% this last year... now if I could only get my extra 7% back...
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Old 02-09-2008, 01:35 PM   #49
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The case for government regulation in most areas of business is when one entity is much more powerful than the entities they deal with, and therefore needs to be restrained from taking unfair advantage. That is why we have predatory lending laws, lots of insurance regulations, investor rights, etc.

In the case of the mortgage fiasco, a powerful party who took advantage was the big financial group that packaged the substandard mortgages as A rated debt. They took advantage of the fact that even the institutional buyers didn't have the resources to really understand what they were getting themselves into.

Buffet constantly makes the point that when things get so complex that nobody can understand what they are getting into (e.g. derivatives), that's a bad thing not only for those involved but everyone else who gets whipsawed when they fall.

In this sense I think the government has an interest in either making sure the mortgage backed securities are as good as they look, or outlawing them altogether if they can't be made transparent enough.

This is not to say there isn't blame all around... there are plenty of small players who acted greedily. Regulations like the tax forgiveness and California's "buyer not responsible for foreclosure debt" laws are only making the problem worse.
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Old 02-09-2008, 03:31 PM   #50
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The government could help to set the current system aright by passing laws to eliminate mortgage securitization, or at least to reign in some of the worst practices. Samclem is right that when the economic loss falls on the person who was sloppy, that person will clean up his act. However, the current separation of the origination process from the economic loss prevents this type of market driven self correction.
Throwing the baby out with the bathwater? Conforming loans were all securitized and have not had nearly the problems because as most have highligted the undewriting requires downpayments, ratios, good credit, etc,etc. The exotic loans were exactly that....they were only suitable for a tiny percentage of the population and when they were mainstreamed it was unsustainable and many were ultra-exotic not suitable for anything other than prolonging a bubble.
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Old 02-09-2008, 03:35 PM   #51
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I agree that there are genuine benefits to securitizing conforming loans, which is why I softened my statement to "rein in the worst practices". Obviously, market discipline failed with respect to the subprime and alt-a sectors. That is where we need regulation.
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Old 02-09-2008, 05:55 PM   #52
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It's nice to see that I'm not the only person who thinks like this.
Unfortunately, I think we are in an extremely small minority. Even the people who post here probably prefer lots of "loopholes".

Give me a flat tax, don't reward me for owning a home, don't make me play games to minimize my burden every year, reduce IRS staff and I'd be happy.
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Old 02-10-2008, 09:48 AM   #53
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in AZ and CA, here they're talking ~70% of loans in no-/low-documentation territory.
Irvine Housing Blog
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Old 02-10-2008, 10:07 AM   #54
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Last night they ran a 30min infomercial for a public auction in the DC area for as many as 500 'distressed' properties. One of these auctions was conducted last year by a national company, but they just used a few ads in the papers and someone posted a link here. I am thinking about going to check it out. Someone attending an event last year reported Countrywide was in the next room financing properties they had just foreclosed.

Per the chart above I think we peaked around 40-50% and I'll bet there's another 15-20% that were just plain lousy due to inflated appraisals, teaser rates, etc, etc.
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Old 02-10-2008, 12:25 PM   #55
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In another section of the forum, RockOn pointed out a graph that shows the history of mortgages that have been securitized.

Historical ABX Graphs
Completely incorrect. The graph shows nothing to do with the performance of individual loans. What it shows is the pricing of derivatves based on mortgage backed securities that were created from pools of subprime loans. The pricing of the derivatives is only tangentially related to the performance of the underlying loans.
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Old 02-10-2008, 02:53 PM   #56
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It's nice to see that I'm not the only person who thinks like this.
Unfortunately, I think we are in an extremely small minority. Even the people who post here probably prefer lots of "loopholes".
Well, there's ERD50, you and me that don't..........
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Old 02-10-2008, 10:36 PM   #57
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Well, there's ERD50, you and me that don't..........
I also noted that Texas Proud says he would benefit if loopholes were eliminated. Marquette is looking for both simple and flat (I think, some people use them as synonyms).

So that's 4 or 5 already.

I wonder how much public support you could really get for eliminating all the complications. I've always figured that everyone is in favor of eliminating all "loopholes" except for those one or two "justified deductions" that they actually use. I'd be pleasantly surprised if I were wrong.
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Old 02-10-2008, 11:00 PM   #58
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Yes, simple and flat would be my preference. Realistically, though, I could easily go with 'simple' right now... if I didn't try and use any loopholes, it'd be simple. So, I guess I only want simple if it reduces my overall burden ;-)

On the surface, it seems easy, flat tax of, say 15% across the board. Home owners don't receive a benefit over renters. People that max out their 401(k) are no better off (from a tax standpoint) than someone that can't even spell 401(k).

In practice, though, how does that work out. I donated a car to charity last year. It's not altruistic because I'll be able to claim the blue book value on my taxes... not bad! Would charitable giving go down across the board? I'd like to think not, but I'm not so sure.
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Old 02-10-2008, 11:22 PM   #59
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Completely incorrect. The graph shows nothing to do with the performance of individual loans. What it shows is the pricing of derivatves based on mortgage backed securities that were created from pools of subprime loans. The pricing of the derivatives is only tangentially related to the performance of the underlying loans.
I never said the graph represented the performance of individual loans. Again, you're putting words in my mouth.
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Old 02-11-2008, 08:01 AM   #60
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I never said the graph represented the performance of individual loans. Again, you're putting words in my mouth.
I call shenanigans (get out the brooms!). You said: "In another section of the forum, RockOn pointed out a graph that shows the history of mortgages that have been securitized."

Again, the ABX does not show the history/perfoormance/other sematics term of mortgages that have been securitized. All it shows is the price history of some derivative contracts.
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