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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (68821)	8/25/2006 12:24:20 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 110194

I am not sure if I can answer the question with absolute confidence. So take the following for what its worth. There are different types of sales. For a whole loan sale, there is usually some repurchase provisions. Some provisions are unrelated to repayment timeliness, such as fraud. e.g. for the stated income loans. Even though income is stated and not verified, the borrow is obliged to tell the true. So if the result of an audit shows the borrower stating $10,000 per month income but in reality only makes $5,000, the buyer can forced the lender to repurchase that loan. Other provisions are related to payment history. During the favorable times, a lender may be on the hook for only the first payment default and the buyer assume all defaults from that point on. During less favorable times, the buyers may demand a longer period. For loans that have been securitized, the lender supposedly have to repurchase for the life of the security if any loan defaults. This could be devastating. Furthermore, a lender often retains the riskiest tranches of the MBS and retain loans completely for "investment" purposes, so they assume the first loss positions for all those loans. Since most sellers of these loans retain servicing rights, usually at a rate based on collections, it becomes extremely costly to service non income generating loans. I am not sure how to quantify that at the moment but that could hit the big servicers such as CFC.