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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: The Duke of URL© who wrote (3573)	7/25/2002 3:10:59 PM
From: MulhollandDrive	Read Replies (1) \| Respond to of 306849

>> I have not read him but that is based on what has been posted here.<< well gee...i've only read what was posted here and came away with the opposite opinion. specific cause? easy credit...loose money...chasing assets.... bubblicious... :)

To: The Duke of URL© who wrote (3573)	7/25/2002 7:09:47 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

How does fanniemae loan at %6 and pay interest to its investors at 14. There are lots of explanations for how this is done. In a falling interest rate environment (interest rates have been declining since 1984) bonds that have a higher interest rate accrue capital gains which can be used to pay income. One can leverage the portfolio. I don't know what the allowed leverage for their portfolio is (maybe no one knows) but a bank can lend out ten times its reserves. 6% with a FF rate as low as ours is quite a spread....then there is the matter of discount points paid on origination. That 6% mortgage is actually higher when you factor in the discount points, or put another way, FNM buys up mortgages not at face value but at a discount so they actually receive a greater yield up front while their bond holders hold most of the prepayment risk because of the way it is passed onto them.