God Bless!

Elmo
Real Estate Professional

You have to remember that the securities are not guaranteed investment vehicles like bonds. They are complicated multi-tiered securities where there is a hierarchy to who gets paid out first. If the fund performs well (lots of extra interest collected I guess) the lower riskier tiers get paid well. The reason investors are freaked is because even the highest “safe” tiers aren’t getting paid because of the high default rates.

This is where the money for the freeze is coming from. Investors who put put money into these SIVs which are underperforming. Because of the scale involved here we’re not talking individuals but institutional investors. Pensions, local gov’t funds, hedge funds, etc. To top it off these investments were also highly leveraged making magnifying the changes in performance.

I think the thing to keep in mind with any public pronouncement about fixing housing is that the government and banks don’t care about the individual homeowner. The individual homeowner is just some statistic in their aggregate probability models. They are acting to help the major banks and wallstreet. Talk has been going around about major multinational banks potentially having to go into bankruptcy if everything thats been going on came to light. Homeowners being helped is a just a side effect of trying to keep a trillion dollar market afloat.

The 7-8% rates were sold off already to investors expecting in their calculations to get over 10% due to the risk associated with the loans.

So somebody has to pay those people. Either the gov writes a check or the banks eat it.

I understand if you are saying that this is better for banks vs “everyone” foreclosing, but if that was the case, the BANKs would have done this a long time ago. Forgiving a higher interest rate is MUCH more expensive then having millions of foreclosures.

Again these rates aren’t “above market rate.” Market rate for those loans is over 10% due to the risk. Banks aren’t going to be profiting if the loans are frozen at 7-8%, so somebody has to pay up.

As for most of subprime going into foreclosure, I believe the number is 10% of subprime that are in foreclosure. Maybe that number is expected to increase, but it isn’t MOST subprime.

I agree with an earlier comment that if somebody wants to be “frozen” they better show that their loan wasn’t fraudulent.

Thanks for the link.

Frank

An example of a teaser is say……a HELOC that’s Prime + 0.25% whereby the borrower is given Prime minus 1.00% for 6-months.

Semantics? Maybe.

the FedGov staying out of this suits my bias. if the banks want to realize trillions in losses by foreclosing on the 1.7 million people or the MBS/CDO holders want to realize complete losses by liquidating and suing the banks for renegotiating the mortgages, then that’s their call. and i would think more than a couple banks would fail as a result but w/ mortgage servicing portability, FDIC insurance, and other banks licking their chops to increase market share their absence will hardly be noticed… i’m focused on WM, C, and CFC.

of course those SWFs throw a wrinkle into all this by investing billions, from their foreign currency reserves, into the lenders delaying their insolvency.

no matter what happens, we’ll be hearing about this one for a long time.

tchaka owen, teaser rates coupled with low or no doc loan underwriting for sub-prime mortgages are exactly how we got to in the mess we are in today. The majority of the paper that is defaulting today was underwritten from early 2005 to fall of 2006. Unlike conforming A-paper mortgages, sub-prime debt instruments were “payment stretching” products (1/2/3 year ARMs) designed to bet on asset value appreciation in the long run to offset both negative amortization due to low payment options AND 100% financing. As such, these loans had fixed rates indexed to treasuries with similar maturities at thin margins. When these mortgages repriced at a higher margin over the 5/10-year treasury, payments went ape shit. If there was no teaser rate or margin increasae, we wouldn’t be in this mess, as rates today are in line or lower with rates when these mortgages were first made.

As bad as this is…this can not be the last stage. This does nothing to resolve the rise in foreclosures which was to be the focus of this bailout. We are going to see more disturbing ideas in the near future is my guess.

Great idea. Make even those that bought with a NO DOC show proof of their income when they got the loan. That little requirement would start to weed out the FEW that did NOT overexaggerate their income.

Thomas, when are we going to get you blogging?

Frank