Mortgage-backed securities III
July 31, 2010 by TheRainMaker
Filed under Securitizations
More on mortgage-backed securities
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@dekes58
I suppose on the one hand that’s fair, with one of these bonds you are buying a fixed income asset, you expect to get your X% and no more, its not like a stock with a variable dividend based on performance.
However I think it would only be fair if they put the money aside to make up for any defaults and if there was not enough defaults to use it all up at the end the bank could keep, it of course with banks being banks this would never happen.
@theporksicle Well then, no doubt the bank would pocket that and the “investors” would at best get their 10%
@dekes58
I know, I was saying hypothetically what if the person couldn’t pay and the house is repossessed and in the intervening period of time between the repossession of the house and the auctioning property values rise dramatically, what would happen to the surplus above the amount the mortgage was issued for? I doubt this situation arises often it was just a hypothetical question.
@theporksicle If your house is worth 1.5 mill in that case then you should have no problem getting a “home equity” loan from another one of these greasy loan companies if not the same one. Or you could sell it for 1.5, pay off the mortgage, and walk with the cash
What happens if property values rise in the period between the loan being issued and the debtor defaulting (as you’ve explained elsewhere usually people don’t default when property values are rising so one would have to assume some external reason existed)? So the debtor was loaned $1 million for the house, the house is auctioned off and it fetches a price of $1.5 million- is that extra $500k distributed to everyone or just the top tranche of investors?
@AlbinoRodriguez
I think in most of the cases the investmentbank holds 100% of the shares, but is issuing cdos…
@AlbinoRodriguez
I think the shareholders of the SPV, because the SPV is the owner of the mortgages
Are mortgage backed securities completely the same as asset backed securities?
The question is who can these special purpose entities be? Are these spe’s crooks?
But how if the SPE is formed 100% from money of the investors. Where did you get that officers hold 51% of the stock authorized? I am interested in learning more about it.
I believe that the SPE still maintains ownership of the loan rights because the officers collectively still hold more than 51% of the stock authorized. This is why today we are seeing investment banks that are losing tons of cash through these deals that were top-heavy a few years ago in the housing market. Investors obviously have gone through huge dividend cuts so everyone really loses.
mortgageartist. com
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the choices you make today define your tommorow.
“i don’t know” – takia kalaam of sal
My question is, who owns my loan?
original bank got paid from investment bank.
Investment Bank got paid thru the MBS or investors.
If i default, who has the legal right to foreclose? If the investement bank already got paid?
Just a thought: maybe some of the people watching these vids are a little too advanced in their knowledge of the subject. These vids are for novices, like myself. Thanks for all you do, Sal.
Paulremote, I was thinking the same thing about the $2Billion going to the SPE.
I would like to ask a question
when a regular bank gives out $1 billion worth of loans it uses fractional reserve banking rules to bring new money into existence – right?
is it that when an investment bank buys these mortgages and sells them further – then existing money (i.e. savings) gets used.
Now, that most of these mortgage backed securities have gone to dirt – so is it that existing money (i.e. money that is no longer debt) got destroyed?
any responses are welcome
lol that is why we r in this financial crisis all thx to ABS, MBS, CDO and Credit difoult swaps CDS, do not learn this or i will be very conserned in US banking system in the future
They create giromoney in an account not “real” money. Most of the money today is only a number on a computer harddisk.
Public Sector debt is 13 trillion
Private Sector debt is 38 trillion.
Is it because of the 50% recovery rate? 20M of 100M default but 10M is recoverable, so total 10M loss?
My question: In the case where 20% borrower default, there seems to be a 15% loss in Total, why do you mention only a 10% loss?
Ideally, borrowers pay 10% per year over 10 years and pay back the total amount at the end. The investment bank receives $2Billion from borrowers.
If 20% default, with the 50% recovery on their properties.
The investment bank will get
$100m from the recovery
$800m from end pay-back
Year : 1 2 3 …. 9 10
Interest $: 80m 80m 80m 80m 80m
That is $800m over 10 years + $800m from the total properties + $100 from the recovery, that makes $1.7Billion, 15%loss??
In response to bubkboss1:
Believe it or not, $4.2 trillion of the debt is actually owed to the federal government itself. That means it’s owed to gov’t agencies such as the Federal Reserve and Social Security. This kind of debt, ARGUABLY, doesn’t have to be repaid. (Kinda like you paying back yourself).
Secondly, most of the remaining $6.8 trillion is owed to domestic American citizens/corporations. The gov’t owes China $1 trillion, which, comparatively isn’t bad as saying “China owns us.”
The notion that the Treasury Department is printing billions of dollars in money is completely FALSE. Just because the media shows money being printed anytime they cover financial news DOESN’T mean the Treasury prints money on a daily basis.
It is imperative you know that the Federal Reserve actually SHREDS $400 million dollars in a SINGLE DAY. Trust me, I have personally been to the Federal Reserve bank and seen $100 notes and $1 notes being shredded and removed from the circulation constan