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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (68864)8/27/2006 10:25:39 AM
From: ridingycurve  Read Replies (2) of 110194
 
RE: whole loans vs. securitizations

Wyatt

I read back through the thread and could not find the source of your reference to whole loans vs. securitizations. Therefore, I’m unable to make specific comments. I can provide some generalizations.

Small originators usually don’t securitize loans because there are too many complexities involved. Instead they sell whole loans to larger entities that have securitization capabilities. There are usually no credit characteristics that set whole loans apart from securitizations, except where the originating entity has portfolioed loans rejected from securitization.

Regarding recourse provisions, non performing FNMA, FHLMC, and GNMA guaranteed loans can only be put back to the originator for a limited period of time. Fraud is a different matter altogether. Non insured whole loans and pools can be full recourse, non recourse, or anything in between. That’s up to the seller and the purchaser.

While there are no hard and fast rules regarding credit quality of whole loans vs. securitizations, there are certainly differences in their liquidity characteristics.

Somewhere in the thread there was a mention of derivatives. The only comment I wish to make is that MBS does not imply derivatives, although any number of synthetic products can be carved out of an MBS by WS if there is a demand for them. The MBS will continue to exist in its original form, and be held by the firm originating the derivatives.
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