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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: pogbull who wrote (6518)	9/16/2002 10:22:50 PM
From: Jim Willie CB	Read Replies (2) \| Respond to of 89467

bond watchers ask: what the hell is "securitized" all about? just thought I would divert focus from the Iraq Clamor this issue of securitized debt is a key factor in the credit world, and a key device to enable the bond market instruments to continue to expand a new credit bubble one hears about mortgage debt being securitized of the risk being offloaded from the issuer this is a huge device being used now in the mortgage market with FannyMae (and other Govt Sponsored Enterprises) channeling huge huge amounts of unsuspecting money into the credit market what is securitized mortgage anyway? here is what I understand it to be if you are a big mortgage banker, you might issue hundreds of $M's of mortgages per quarter if you just let it ride, holding this debt, then you run risk of interest rates rising you can do two things: offset the risk with futures contracts or securitize the debt with the help of a bond trading house if the quality of the loan portfolios is good, strong, viable, from creditworthy customers, then offsetting with futures to shed the rate risk is certainly a common avenue taken by mortgagors but if instead, the appraisals are forced, the income qualification is flimsy, the proved income is not checked, the kickbacks are there on P&S to cover closing costs, the downpayment is obtained via secret crapp second mortgage to evade PMI, then the issuing mortgagor might want to unload the whole bag of shit that is destined to go bad in today's mortgage market, we have clear CONFLICT OF INTEREST between the originators of loans, and credit houses offering them to secondary buyers the originators dont care if the loans go bad the credit brokers of the loans dont want to know the buyers of the mortgage-backed securities (MBS) arent aware this parallels the IPO scheme where investment bankers issue stock in bullshit companies knowingly now FannyMae, FreddieMac, and SallyMae are holding trillion$ worth of mortgages in their portfolios their quality from recent months is extremely suspect some properties arent worth the value of the loan some borrowers dont have the income to pay the loan comfortably and some graft might be laced thru the entire process the unsuspecting MBS buyers are contributing unwittingly, as a real estate bubble is being inflated congratulations, Mr GreenScrotum you built yet another bubble, while dealing with the last bubble in stocks remember the Brady Bonds back in the 1980's ? these represented securitized debt from Latin America back then, and here again now, Latin debt exists much like commercial loans officially this type of debt is called "sovereign debt" because the borrower is not a company, but instead a nation well, the Brazilian or Argentinian debt was packaged into securities, with information about the economies made public, and sold to invsestors what is the consequence with changes in risk perceived? a simple debt created as an installment loan must be paid in amortized fashion make your monthly or quarterly payment, and all is well miss a payment, and you enter the stages of default there is delinquency before default with default can come writedowns, renegotiations, tarnished credit, etc but if the debt is securitized, then a whole new game the MBS instrument then trades like a bond it goes up in value, as Bradys did successfully, when the risk is alleviated, while associated interest yield drops if could go down in value, as an Argentine Brady Bond would have if they existed this year, while they went bust so MBS securities trade like ordinary bonds the unsuspecting investors now in Mortgage Backed Securities are gonna get burned in my opinion if and when the real estate market goes into decline, MBS bonds will drop in value, as prevailing mortgage rates rise instead of delinquency & default stages, they just go up or down in value some can be followed with yields that track certain bonds the bond that relates most closely to MBS is the 10-yr TNote but the gap between the TENS and a MBS index indicates the risk to real estate I am unsure now what this gap Spread is the Spread between Treasurys and CorpBonds is high now unsure about the MBS spread over Treasurys the congame in MBS niche for the credit market now absolutely requires "securitizing" the risk in order to pass these crappy loans to naive blind foolish people the congame and its credit MBS bubble could not happen without the essential vehicle enabled by such securitized instruments oy, this is to end very badly for MBS bonds, just like stocks the concept of securitized mortgages will become a hot topic soon !!! / jim p.s. the key difference between Brazil or Argentinian sovereign debt and US Federal debt is that Latin debt remains largely designed as "installments" subject to default and US Treasury debt has been "securitized" USTBonds, Notes, Bills trade up/down as rates fluctuate p.p.s. corporate bonds are also "securitized" some are convertible into stock shares after time certainly, many companies carry simple commercial installment loans also