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Liquidity crises in the mortgage market

By Patrick following x   2018 Mar 31, 1:22pm 1,077 views   5 comments   watch   sfw   quote     share    

Of particular importance, these liquidity vulnerabilities are still present in 2018, and arguably the potential for liquidity issues associated with mortgage servicing is even greater than pre-financial crisis. These liquidity issues have become more pressing because the nonbank sector is a larger part of the market than it was pre-crisis, especially for loans securitized in pools with guarantees by Ginnie Mae. As noted in 2015 by the Honorable Ted Tozer, President of Ginnie Mae from 2010 to 2017, there is now considerable stress on Ginnie Mae operations from their nonbank counterparties


I shouldn't point this out, but one of the authors is You Suk Kim of the Federal Reserve Board. No doubt named in Korea.

I've also met Chinese guys named Johnson Wang and Jim Shu, who did not seem to know that their names could be interpreted humorously in English.
1   anonymous   ignore (null)   2018 Mar 31, 5:39pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I know a guy named Huong (pronounced "hung") Dong
2   APOCALYPSEFUCKisShostikovitch   ignore (36)   2018 Mar 31, 7:12pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

If you can't pay for a house in cash, you should not be living indoors.

3   everything   ignore (1)   2018 Apr 1, 7:32am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Most creditworthy get loans now, as in yesterdays loans, anyone with some money and half a brain mopped up after the last crisis, and even up until 2014 prices were pretty soft. By the summer of 2017 mortgage rates were as low as they can go. If you had a job, a decent income, a down payment, you wanted to buy, you bought. Prices have gone up since then, and rates. Now, if you want to sell RE the element of risk or repayment is higher now. But, so is the reward, higher prices mean better commissions, higher interest rates.

I can only suspect .. Whoever is collecting these commissions and servicing the loans they don't care if the owners on the title have more risk, Realtor gets paid if they can close the deal, bank makes it's money on the front end of the loans. Banksters are influenced by CEO's who push targets or projections down to the peons, Wells Fargo is known for this kind of behavior although I'm sure they all do it to some extent.

Although the complexity here of how these loans are sold or serviced (nonbanks???), maybe it's just creative banking, it's still the same on the buyers end, they make payments, which on the front end most all of which are just interest payments. Do they care if the buyer is getting into something they can truly handle.
4   justme   ignore (0)   2018 Apr 1, 9:08am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I read some of the paper and found some good information. One of the questions I had after just reading the thread intro was how being a "mortgage servicer" (=the entitiy that collects mortgage payments and distributes them to bondholders) could be subject to "liquidity pressures", meaning lack of ability to sell or buy some product without materially affecting prices.

p.2: The Ginnie Mae servicing model, for example, assumes that nonbank servicers will have the resources to absorb a substantial share of credit losses before the government steps in, yet it is not clear that the sector has the capacity to absorb those losses, or that the existing prudential standards are sufficient to ensure the nonbanks’ viability in a stress scenario.

In addition to the losses that the government is explicitly on the hook for, the experience of the financial crisis suggests that the government will be pressured to backstop the sector in a time of stress, even if such a backstop is not part of the government’s mandate ex-ante. We end by observing that this aspect of mortgage-market fragility is almost entirely missing from the housing-finance reform debate.

In other words, so-called "mortgage servicers" need to have CAPITAL, to handle financial stress, and they don't have (enough of) it.
5   justme   ignore (0)   2018 Apr 1, 9:21am   ↑ like (0)   ↓ dislike (0)   quote   flag        

While I'm at it, some more info about the mortgage industry that people may not be aware of:

1. Only GNM (Ginnie Mae) is a true government AGENCY and sell mortgage bonds that have an explicit explicitly government guarantee

2. FRE and FNM (Freddie Mac and Fannie Mae) are not repeat not government agencies and do not have an explicit government guarantee of their loans. Wall St will fudge and misrepresent and call FRE/FNM bonds "agency bonds", but they are not agencies, they are Government Sponsored Enterprises (GSEs). Wall St does this for their own profit motives.

And now some deconstruction of the often intentionally confusing lingo:

1. "Mortgage Loan Originator" (and variations thereof) really means "Mortgage Debt Originator", that is, the broker that arranged the mortgage. You would think that an MLO was the entity or person that provided the loan, but, no, it is the entity that provided the DEBT for someone else to provide the loan.

2. "mortgage servicer" in turn takes on the meaning of debt originator.

3. "(Government) Agency" gets bandied about as a moniker for entities that are NOT Government agencies, but rather Government Sponsored Enterprises.

(more to be added ...?)

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