patrick.net

I have no data to offer.

I look forward to the "Mortgage Abuse and Homeowners Protection Act of 2007" :)

@Peter,
:lol:

@boulderbo,
In the event of widespread systemic defaults, an S&L RTC-style taxpayer bailout (at least for GSE-issued paper) sounds likely to me. I wonder if MBS-holders will get full face value or a percentage thereof.

Osama will get it all.

Huh?

I’ll get my coat.

Why, is it cold down there? :)

In general expected losses (if you buy today’s 30-yr bond at 4.5% and rate moves to 5.5% you would have just lost 30% marked to market but you should have known that before you bought, shouldn’t you?) should be well tolerated.

But I thought MBS never goes down... :(

I am always wary of such "credit enhancement". Such arrangements are only as good as the counter-parties.

I bet there wasn't (isn't) much spread between better plain vanilla bonds and such "salt-and-peppered" junk.

Peter, my understanding is that the spread averages ~ 150 basis pts.

Hmm... 150pt can be tempting nowadays. :)

most Americans think if they have $10k saved to retire on they’re fine, morons! In Afghanistan, maybe!

Perhaps 10K oz gold

Wow, now this is a full inversion, no?

bloomberg.com/markets/rates/index.html

DinOR,
Thanks for the thumbnail explanation on the nature of "pass-through" certificates & risk.

Mr. Right,
Thanks for the % approximations. Is this proprietary data or public? If public, could you post a link for it?

H.Z.,
Thanks for your input as well. I can probably look it up, but do you happen to have any of the links handy for SEC filings by GSEs, mREITs or major banks?

@SJ_Jim,

At this point, not even an iMPish bull could deny we're seeing full inversion. ;-)

HZ,

The national reach of GSE's has been one of the reasons I've always rejected David Lerah's spin that there is no national RE market. The liquidity pool we've very intentionally created may well be our undoing. You are absolutely right, those that did not DEMAND to be paid an appropriate "risk premium stand to lose the most but there will be plenty of pain to go around.

In 1999 who gave a rats ass about MBS? Anybody? Be honest here. That's right, no matter where you went, virtually nobody was talking about MBS's, or REIT's for that matter. Unless you were in the industry not many people knew who Bill Gross was let alone worshipped him. During the stock markets darkest hours Bill came out and said the DOW was still overvalued and should be at 5,000 and the NASDAQ? God only knows where?! Bill became a rock star/celebrity and Henry Blodgett and Jack Grubman became the "defendants". Retail investors (some on margin) couldn't bail fast enough. Had it not been for mutual funds and 401K redemption issues it would have been even worse. Those that could bail, did. Now, there's all these trillions of dollars sitting in money markets. Nobody gets paid on a money market! Brokers got bills too so on to the next asset bubble, MBS and REIT's. But it was tough to get people off the sidelines with yields of 4 to 6% so leverage was brought in to jack the yield up to 8 or 9% in ETF's that rolled out every month for at least 8 qtrs. Many in excess of a billion dollars, among the largest IPO's ever. During this period (when investors were ducking for cover) it wasn't very popular to be introducing the notion that there could a housing bubble? You're kidding me right? We finally get these people off the fence (by putting the fear of God into them) and you're telling them they are not being properly compensated on a risk to reward basis? Bill Gross loved every minute of the equity market meltdown. Why not? It propelled his firm from a fairly obscure "bond house" to controlling 1% of the world's debt paper. Imagine being paid 50 to 150 bps on 1% of the world's debt! He was a big part of the problem getting investors back into dirt cheap tech/telecom and other issues and actually protracted the bear market. In short they were buying bonds when they should have been buying stocks. Will Bill Gross be as gracious when it's his turn in the barrel?

Harm,

DinOR has more? Like I say, I'm a different person on Friday! I was wondering if what you perhaps meant to say was that MBS's were not adequately presented to the investing public? In terms of risk where should MBS's be placed in the food chain?

Cash
Savings Account (FDIC Insured)
Savings Bonds (Full Faith and Credit yada yada)
T-Bills (Gov. Backed)
Money Markets (SIPC Insured)
Muni's (General Obligation) the power to levy taxes AAA ins. to D
Muni's (Revenue Backed) Toll roads and bridges, hospitals AAA ins. to D
MBS/CMO?
Senior Subordinated Loans
Debentures (Corp.)
Corporate Bonds AAA to D
Corporate Pfd's
Secured Notes
Corporate Common Stock
Unsecured Notes
Commodities
LLC's (Energy exploration/aircraft leases)
Bridge Loans
Venture Capital (Angel Money)

While I'm sure not in perfect order (I await being put in my place) these are the ones I can remember off the top of my head. In terms of the "pecking order" MBS's SHOULD be near the top. In a normal world, they would be. I fear that in all too many cases these were portrayed to the public as "money market substitutes". True they're not SIPC Insured but you're not going anywhere in that mmkt. Mr. Investor! But, but how are these yielding so much more than mmkt./muni's? How? PFM Mr. Investor. PFM? That's right, Pure Freaking Magic!

Perhaps a better question to ask would be if there exsists any data that shows the actual number of "homeowners" who bought and actually have solid financial means to pay.It would also be good to see the percentage of money on the principal paid per home on average. The higher the loan percent, the more money the banks have extended themselves . This in the end is ultimatly what determines how and why people buy even though they are fully aware that the prices are abnormally high, and who will be left holding the bag, which along with financial institutions, will ultimatly hit the borrowers the hardest.
For one, I would see if any data exsists on how many people in the last 5 years have bought with IO or ARM loans. Those with IO loans didn't have the means to pay in the first place, so if there are large numbers of these individuals, then I'd expect this to figure into the eventual equation more.
I checked out zillow for the first time yesterday and saw that every house in my neighborhood is a minumum of 600k. I do not know a single person who can afford that. So surely there must be a signifigantly high number of people who bought and ultimatly will get F$%cked big time. In truth, that's the reason we're all here: Because none of this real esate business makes any sense, and there is a day of reckoning on the horizon. How it will play out, and whatever demons come out of the woodwork in the aftermath is what we all want to know.

This thread is growing very slowly because very few have information that meets the specs.

But the way MBS is structured AAA tranches should be safe in general

Correct me if I'm wrong, but I thought the top tranches weren't the "safest" because they cary significant pre-payment risk. This risk could well rise in a long-term falling interest environment (as the inversion implies). The "safest" trances are those just below sterling, but above toxic waste.

Unalloyed Says:

February 10th, 2006 at 8:41 am e
This thread is growing very slowly because very few have information that meets the specs.

Sounds like a reasonable objection. Ok, then, I'll allow virulent anti-Boomer rants as well. ;-)

I believe we were discussing credit risk.

Clarification noted. Not to be mistaken with investor risk then.

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