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Strategies & Market Trends : Dividend investing for retirement

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To: Elroy who wrote (6988)	12/30/2010 12:25:10 AM
From: Paul Senior	1 Recommendation Read Replies (1) of 34328

Not exactly how they do it. Jmo here. Reads like you are asking if they borrow short and loan long and that they might get caught up in that. They buy loans. They are not "loaning out money" in that they do not make loans. They use hedging techniques and sales so that they aren't long term holders of a particular loan or loans. They buy fed insured loans that pay a higher yield than what the funds they borrow to buy those loans cost them. There's no risk of default because the loans they buy are fed insured. Short term costs to borrow money are exceptionally low. A reasonable person would likely conclude, so low, that the the next change would be an upward move of interest costs. If so, at some point the spread between what it costs to borrow and what is gained from the yield on the mortgages, declines. Which means distributions to stockholders are reduced. Maybe sharply so. When I looked last year the margin amounts that were borrowed declined. The survivors of the crisis had learned from that period. As you, 7-8 times was what I found too. Down from 12x or more pre-crisis. Jmo here. I could be wrong.

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