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Dyl Ulenspiegel
27-02-2009, 14:23:03
From last october:

dyl: "How low can a AAA-tranche go? .... you may recoup what after costs? Might be as low as 50 %?"

kh: "50% is ridiculous. Don't be silly."

Now from the FT:

http://www.ft.com/cms/s/0/2970532c-0421-11de-845b-000077b07658.html?nclick_check=1

"JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent."

"But with the ABX now suggesting that triple A subprime mortgage assets are worth around 40 cents on the dollar (depending on the precise vintage), the message from that might almost be too optimistic in relation to some CDOs."

Yes, I've been ridiculously optimistic. :p


Also an attempt to lure the crazy canuck back. :D

Provost Harrison
27-02-2009, 14:47:25
Call me back when you have the English translation of this thread...

Dyl Ulenspiegel
27-02-2009, 14:56:54
I'll have MrG translate it.

Lurker
27-02-2009, 15:13:28
Those are incredible figures.

Man I wish I had a lot of cash.

Tizzy
27-02-2009, 15:25:21
I wish I had any cash

The Mad Monk
27-02-2009, 23:51:22
I wish I could play some Johnny Cash.

Greg W
28-02-2009, 00:45:31
Originally posted by Tizzy
I wish I had any cash That's what Funko is for, to give you all his money.

Oh, wait, forgot, you're not married yet, he doesn't know yet. :nervous:

Funko
02-03-2009, 09:29:58
Don't see why, she doesn't earn that much less than me!

MDA
02-03-2009, 18:04:52
Does she pull ahead when you divide earnings by actual work needed?

The Mad Monk
02-03-2009, 19:26:12
Are you saying that Tizzy needs work done?

Greg W
03-03-2009, 00:39:51
Originally posted by Funko
Don't see why, she doesn't earn that much less than me! And you think this makes your money any less hers... how exactly?

Venom
03-03-2009, 01:17:22
So how much cash would you need?

Funko
03-03-2009, 08:48:49
Originally posted by Greg W
And you think this makes your money any less hers... how exactly?

I guess we're going more for a partnership rather than an old fashioned breadwinner/homemaker style setup.

Tizzy
03-03-2009, 09:44:01
Originally posted by Greg W
And you think this makes your money any less hers... how exactly?

Oh yeah, of course, all women only get married so they can sponge off their husbands :rolleyes:

Funko
03-03-2009, 09:50:09
Quick, send more wine.

Greg W
03-03-2009, 12:14:17
Pfffft, that's less wine for not playing along. :pOriginally posted by Tizzy
Oh yeah, of course, all women only get married so they can sponge off their husbands :rolleyes: You're at least supposed to let me scare him - a little at the least. :(

Funko
03-03-2009, 12:28:23
Yeah, and I was scared 'cause I tend to get my information about our relationship from the internet rather than talking to Tizzy.

Dyl Ulenspiegel
03-03-2009, 12:46:11
Did you happen to meet her on the internet?

Funko
03-03-2009, 12:47:57
jj inderdeeed. At apolyton.

MoSe
03-03-2009, 12:55:06
AAA = Acquainted At Apolyton
i.e. a badge of shame

in our grim world it's just Authentication Authorization Accounting (a server filtering dialup access to a network)

Greg W
03-03-2009, 23:57:40
Originally posted by Funko
Yeah, and I was scared 'cause I tend to get my information about our relationship from the internet rather than talking to Tizzy. You lot are no fun at all. :(

King_Ghidra
04-03-2009, 09:45:12
So failed to draw KH out

Dyl Ulenspiegel
15-05-2009, 08:24:41
BUH!

Here's another story:

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?pagewanted=1&_r=1

Apart from the funny aspects: Two extra sources of losses - over appraisal and letting loans be delinquint for 8 months and running.


PS: They pay that retard a 120k $ salary ??????

KrazyHorse
15-05-2009, 14:41:09
OP: Dyl, it appears that you don't understand the difference between an MBS and a CDO created out of MBSs. It also appears that you don't understand the sample bias inherent in only looking at CDOs which have already defaulted

:)

KrazyHorse
15-05-2009, 14:44:07
The post(s) from last october you're referring to regarded the value of AAA tranches of MBSs. The ft article you linked to regarded the value of "AAA" tranches of CDOs (built mainly out of MEZZANINE TRANCHES OF MBSs!) which are ALREADY IN DEFAULT

:)

mr_B
15-05-2009, 14:52:08
Originally posted by Dyl Ulenspiegel
I'll have MrG translate it. :lol:

Dyl Ulenspiegel
15-05-2009, 15:33:10
Well, I tried to get you back here. :D

CDOs of MBS multiplies the effect, sure. But the nr is still stunning and the AAA tranches of the MBS must be heavily impaired. The article is, however, not really clear to me how the composition of AAA and mezzanine MBS went in detail.

But if MBS are down to 40%, a AAA tranche with a 20% buffer has lost 50%.

Sample bias, two points:
I said "up to" as you said that the assets should be so well-deversified to exclude such extreme outcomes. Seems some weren't.

Second, depends on the reason for liquidation. As the market for the things no longer worked, liquidation may no longer be strongly related to asset quality.

KrazyHorse
15-05-2009, 15:41:08
CDOs of MBS multiplies the effect, sure. But the nr is still stunning and the AAA tranches of the MBS must be heavily impaired.

This does not follow AT ALL.

The AAA tranche of the CDO represents widespread losses in the underlying assets, which are mainly the mezzanine tranches of MBS. So assuming an overall value of 40% on these, there is still some way to go before you start eating into the underlyings' AAA tranche (there are already likely some outliers which have breached this, but unless the distribution is ridiculous then most have not).

Sample bias, two points:
I said "up to" as you said that the assets should be so well-deversified to exclude such extreme outcomes. Seems some weren't.

No, I said MBS AAA would be. And they are, as far as I can tell.

Second, depends on the reason for liquidation. As the market for the things no longer worked, liquidation may no longer be strongly related to asset quality.

This may well be. But there is still likely SOME negative correlation between CDO defaulting and asset quality.

KrazyHorse
15-05-2009, 15:44:04
By the way, the CDO of MBS market SHOULD be much smaller than the MBS market itself, as far as I can tell; mezzanine tranches are usually something like 7% to 20% (?).

Dyl Ulenspiegel
15-05-2009, 16:02:37
Originally posted by KrazyHorse
This does not follow AT ALL.

The AAA tranche of the CDO represents widespread losses in the underlying assets, which are mainly the mezzanine tranches of MBS. So assuming an overall value of 40% on these, there is still some way to go before you start eating into the underlyings' AAA tranche (there are already likely some outliers which have breached this, but unless the distribution is ridiculous then most have not).



Hmmm... the article says for the broad sample from the failures are taken:

"From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)"

Then:

"The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent."

I understood this as 32% on CDOs created from safer than mezzanine tranches of MBS. The second refers to AAA CDO tranches created from mezzanine MBS tranches, but there we are at 5% recovery. How do you arrive at "The AAA tranche of the CDO represents widespread losses in the underlying assets, which are mainly the mezzanine tranches of MBS."?

KrazyHorse
15-05-2009, 17:07:34
"From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)"

This is simply wrong, AFAIK. There is no reason to securitize and tranche the AAA tranche of ABS. These are already AAA. You don't gain anything by slicing and dicing them any further. Resecuritizing and retranching are supposed to bump you up in ratings level.

:)

KrazyHorse
15-05-2009, 17:08:53
the difference between AAA and mezzanine (or equity) tranches of CDOs of MBSs is the tranching, not the underlying

:)

Dyl Ulenspiegel
15-05-2009, 17:14:58
Ok, but based on that part of the article, you have some horribly impaired AAA tranches of MBS to get to a 68% loss on a CDO AAA tranche of that, conceded?

Now I said the article is not entirely clear to me, and the reason is the one you state - it does not make much sense, and the nrs are staggering.

What I think it may mean is that (on average) one third mezzanine MBS and two thirds AAA MBS were merged into a CDO to squeeze out some extra AAA. That is at odds with what they say later on, but they have mixed up whether the mez. refers to the MBS or the CDO. (edit - ie what you said above)

If I were paid to make sense of this my best guess would be: hmm, that's taking a bit of a calculation....

Dyl Ulenspiegel
15-05-2009, 17:25:50
Ok, I'm not sure i got this right but for a try:

A CDO has as underlying

67 AAA MBS 33 mez MBS

The CDO is tranched 80 AAA, 20 lower

If the mez MBS is wiped out completely, the AAA CDO tranche would lose 13/80.

To get to a recovery of 32% on the AAA CDO tranche, you need to recover about 25% of the total underlying of the CDO. Ie losing 75% of the MBS, split into 33 mez and 42 of the AAA MBS. Still the AAA MBS has to lose more than 60%.

KrazyHorse
15-05-2009, 17:40:52
I agree with your math, but I think it's based on a lack of understanding by the author of the article of exactly how a AAA CDO of ABS is created.

It wouldn't be the first time that financial journalism was poor.

:)

KrazyHorse
15-05-2009, 17:52:51
By the way, I don't agree AT ALL with the methodology apparently used to rate CDO of ABS. Especially not when the ABS are all based on similar underlying assets which are prone to systemic movements.

To take a guess at this methodology it likely involves tracking movements in mezzanine tranches of different MBS against each other, coming up with some sort of variance-covariance model for these assets, doing a PCA on this, creating a portfolio of these assets which minimizes the exposure to the first few principle components, then tranching and basing your rating on the variance you got out of this. The problem is, as always, that you become more and more sensitive to flaws in your model as you get further and further away from real assets. A previously unheard of move in housing prices nationally will hit the "AAA" CDO of MBS tranche FAR MORE than it will hit the AAA MBS tranche.

Dyl Ulenspiegel
15-05-2009, 17:55:55
Flawed journalism - may well be, but I assume they stated the final result correctly:

"The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent."

How would you explain the 32 and 5 %? They seem to be taken from that study.

MDA
15-05-2009, 17:56:55
Geology forum!

Dyl Ulenspiegel
15-05-2009, 17:59:48
Originally posted by KrazyHorse
A previously unheard of move in housing prices nationally will hit the "AAA" CDO of MBS tranche FAR MORE than it will hit the AAA MBS tranche.

You lost me there.

Unless you mean that the AAA CDO tranche based on _mez._ MBS will suffer much worse than the AAA MBS tranche?

KrazyHorse
15-05-2009, 18:17:23
Unless you mean that the AAA CDO tranche based on _mez._ MBS will suffer much worse than the AAA MBS tranche?

Of course. Because THAT'S HOW YOU MAKE CDOs. You don't take the stuff that was already AAA and throw it in with dog food. You take a mix of different types of dog food, pull out what you believe to be the AAA piece of it and are left with even worse dog food.


"The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent."

How would you explain the 32 and 5 %? They seem to be taken from that study.

I don't understand what you're asking me. The AAA tranche of defaulted CDOs created from mezzanine (and equity?) tranches of MBS has a 32% recovery rate, and the mezzanine tranche OF THE SAME CDOs has a 5% recovery rate. What's there to explain? The only problem with the article as written is that the author doesn't understand what the AAA tranche of CDO of MBS is comprised of; it's NOT the AAA tranche of the original MBS.

Dyl Ulenspiegel
15-05-2009, 18:31:37
"What's there to explain?"

Your take on the article - it's not what's written. Entirely possible that you are correct, but there is no real support to your interpretation either.

Anyway, your assumption that the underlying is only mez MBS is what I wanted to know about your take.

Did you read the article from the NYT guy? Freakin unbelievable, I wonder what the lender will recover in this case. :D

KrazyHorse
15-05-2009, 18:51:03
Your take on the article - it's not what's written.

No, because what's written is crap. :)

Entirely possible that you are correct, but there is no real support to your interpretation either.

Other than the last month and a half of the financial engineering classes I've been taking.

:)

Dyl Ulenspiegel
15-05-2009, 18:52:31
Opinion, opinion....

And an appeal to authority. :D

KrazyHorse
15-05-2009, 18:55:03
There's probably a small piece of AAA MBS in some CDOs in order to firm up the profile (just enough to game the ratings agency I would guess) but the real point of the CDO of MBS is to take crappier risk stuff and "turn it into" (at this level of abstraction my feeling is that whatever risk profile you come up with isn't that much better than an educated guess anyway) AAA stuff, for which there's a significant premium.

Dyl Ulenspiegel
15-05-2009, 19:08:03
I used to think that was more than a small piece of higher rated stuff, but admit to utter lack of evidence. I vaguely remember something about the rating agencies requiring a higher portion, which lead to CDOs of CDOs to get the miraculous expansion of AAA.


It's amazing how that worked. The perpetuum mobile of finance, and (almost) everyone believed in it....

KrazyHorse
15-05-2009, 19:10:40
I don't share your utter skepticism of everything they built up. A lot of it was smoke and mirrors. A lot wasn't. Which was which has, I hope, become evident. The only way you get to test your model at the extremes is when the extremes occur.

:)

Dyl Ulenspiegel
15-05-2009, 19:46:19
As long as it is about redistributing risk, it's ok.

As soon as they pretend to be able to eliminate risk, they will create these "extremes" that show that they don't work that way.

If you have, in addition, an implied bailout guarantee, things will go wrong. No way they won't.

My view is: regulate the financial sector in a way that no one can hope for a bailout. Make the managers liable. And then engineer all you want.

KrazyHorse
15-05-2009, 19:56:39
My view is: regulate the financial sector in a way that no one can hope for a bailout. Make the managers liable. And then engineer all you want.

I don't think that the moral hazard in an implicit government guarantee of the system as a whole is a significant factor. More likely simple overconfidence in one's own abilities and the boundaries of rationality.

Dyl Ulenspiegel
15-05-2009, 20:58:57
That would argue for heavy regulation.

KrazyHorse
15-05-2009, 23:48:44
Good luck. More regulations = more work. :)

Kuciwalker
16-05-2009, 18:07:43
this is an interesting thread

KrazyHorse
16-05-2009, 19:50:40
Everything I post is interesting

Oerdin
16-05-2009, 21:17:21
No.

Drake Tungsten
19-05-2009, 21:30:43
Yes.

Dyl Ulenspiegel
20-05-2009, 07:17:17
maybe.

Dyl Ulenspiegel
15-06-2009, 19:24:27
This might be interesting:

http://www.marketwatch.com/story/fitch-takes-various-actions-on-543-2005-2008-us-subprime-rmbs-deals?siteid=nbkh

"Of the approximately $475 billion senior classes initially rated 'AAA' and issued between 2005 and 2008, $293 billion has been repaid to date. Of the remaining outstanding senior class balance of $182 billion, approximately 18% ($32 billion) remains 'AAA' upon completion of this rating review due to structural features which have mitigated the collateral underperformance. An additional 12% remains investment grade while 9% is non-investment grade but not distressed; 61% is in a distressed rating category below 'B' due to an experienced or expected impairment. The majority of the senior class distressed bonds will have Recovery Ratings of 'RR3' and 'RR4', reflecting projected recovery cashflows with net-present-values of 30%-70% of the current face amount of the bond."

That part is not too clear either, but I think this is about MBS, and with a 70% loss a CDO based on that stuff will be toast, too.

Resource Consumer
15-06-2009, 22:01:52
As an economist, I disown this thread.

KrazyHorse
16-06-2009, 05:48:01
This might be interesting:

http://www.marketwatch.com/story/fitch-takes-various-actions-on-543-2005-2008-us-subprime-rmbs-deals?siteid=nbkh

"Of the approximately $475 billion senior classes initially rated 'AAA' and issued between 2005 and 2008, $293 billion has been repaid to date. Of the remaining outstanding senior class balance of $182 billion, approximately 18% ($32 billion) remains 'AAA' upon completion of this rating review due to structural features which have mitigated the collateral underperformance. An additional 12% remains investment grade while 9% is non-investment grade but not distressed; 61% is in a distressed rating category below 'B' due to an experienced or expected impairment. The majority of the senior class distressed bonds will have Recovery Ratings of 'RR3' and 'RR4', reflecting projected recovery cashflows with net-present-values of 30%-70% of the current face amount of the bond."

That part is not too clear either, but I think this is about MBS, and with a 70% loss a CDO based on that stuff will be toast, too.

Taking the midline recovery rate of 50% on 61% of 182/475 of originating we get a grand total loss of...11.7%

:rolleyes:

Dyl Ulenspiegel
16-06-2009, 07:12:02
The interesting thing was the concentration of losses, not the average.

Oerdin
16-06-2009, 07:25:03
Wasn't that the goal? To concentrate loses among people who were willing to take the greatest risk (or be suckered in to it with an overly rosy credit rating) and then to have the best rated (who were almost always insiders) suck up all the cream. There is buyer beware and then there is stacking the deck.

KrazyHorse
17-06-2009, 17:16:09
The interesting thing was the concentration of losses, not the average.

What concentration would that be?

KrazyHorse
17-06-2009, 17:41:44
Wasn't that the goal? To concentrate loses among people who were willing to take the greatest risk (or be suckered in to it with an overly rosy credit rating) and then to have the best rated (who were almost always insiders) suck up all the cream. There is buyer beware and then there is stacking the deck.

a) The goal of securitization and tranching is not to concentrate risks; it is to provide a differentiated market for risk. Often this leads to a spreading of risk. Without securitization all risk would have remained with the originating entity. With securitization, others may purchase part of that risk.

b) If there's a story about "unwitting investors" here it's going to be mainly about small investment funds managed by fuckwits who thought they were as smart as the Street. The fault lies with these managers and with the people who hired them. When somebody lays a contract on your desk which is the size of a phone book and you DON'T have an army of lawyers and quants to decipher it for you then you should say "no thanks". Not get dollar signs in your eyes. I have no sympathy for these people.

Dyl Ulenspiegel
17-06-2009, 18:33:18
"The majority of the senior class distressed bonds will have Recovery Ratings of 'RR3' and 'RR4', reflecting projected recovery cashflows with net-present-values of 30%-70% of the current face amount of the bond."

So roughly a fifth of the original AAA RMBS vintage is in the 30-70% loss category.

There's no further information on the nature of the bonds, but they seem to be senior not mezzanine. For the Fitch material you have to register (although it would be free it seems).

I'm not sure what exactly you are denying. I said a AAA tranche can go as low as 50%. Here we have some that are projected by Fitch to go as low as 30%. Or?

KrazyHorse
18-06-2009, 05:09:36
Dyl, you appear to have a reading problem.

What will lose 30-70% of value is NOT 20% of the original AAA MBSes

What will lose 30-70% of value is 20% of the remaining AAA MBS VALUE

There's a huge fucking difference. The ones which are going to default have ALREADY PAID OFF SOME PERCENTAGE OF THEIR INITIAL FACE VALUE AT THE AGREED UPON YIELD. So the total loss on them is NOT 30-70%. It's 30-70% of whatever's left on them. The actual overall loss rate for the worst-affected MBS is not derivable from the article you provided.

:gasmaske:

KrazyHorse
18-06-2009, 05:22:29
Also, you should note that in slang usage people throw a lot of types of MBSes together into the same pile. I would be surprised if all of these "RMBS" were vanilla pass-through MBS. Some of them may well be CDOs of MBS (I've already discussed how these guys have higher effective leverage than vanilla MBS); others can be interest only or principal only MBS (which are subject to risks in addition to borrower default risk; they are also subject to prepayment risk).

In other words, you're trying to glean hard info from shitty financial journalism. And it's not going to work. Especially when you can't even fully parse what's written.

Dyl Ulenspiegel
18-06-2009, 07:47:53
Dyl, you appear to have a reading problem.

What will lose 30-70% of value is NOT 20% of the original AAA MBSes

What will lose 30-70% of value is 20% of the remaining AAA MBS VALUE



That's far from clear. And your reading depends on whether "the current face amount" of the worst bonds is 20% of the initial. And you get that from... the average?

Btw, shitty journalism... I wanted to look at the fitch release, but I can't be arsed to register with the details they want.

KrazyHorse
18-06-2009, 10:06:25
That's far from clear.

No, that's 100% crystal clear.

The majority of the senior class distressed bonds will have Recovery Ratings of 'RR3' and 'RR4', reflecting projected recovery cashflows with net-present-values of 30%-70% of the current face amount of the bond."

KrazyHorse
18-06-2009, 10:16:08
And your reading depends on whether "the current face amount" of the worst bonds is 20% of the initial.

My reading doesn't depend on anything except the ability to read. The current face amount of the outstanding bonds is 182 billion. That's given.

They then go on to say that 61% of this amount is distressed below B. And that most of this is RR of 30-70%.

Making the reasonable assumption that the midline recovery rate applies to all of this 61% and that there is no loss from the remaining 39% we can get the OVERALL AVERAGE LOSS RATE of 11.7% This is good to +/-4% at the outside, say

We cannot get any info about the total loss on the worst performing bonds because there isn't enough in the article you posted.

Stop being an Austrian lawyer and admit that you read the paragraph wrong.

Vanilla MBS AAA tranches DO NOT HAVE LOSS RATES OF 50%. That's fucking retarded.

Dyl Ulenspiegel
18-06-2009, 12:17:30
Relax. There will be a finance job for you, regardless of the size of this current disaster.

"Making the reasonable assumption"

Assumption, yes. Reasonable, I'm unconvinced. The nr refers to the total vintage, I do think that bonds will rather be repaid or liquidated in total, than piecemeal and get a new rating.

"Vanilla MBS AAA tranches DO NOT HAVE LOSS RATES OF 50%. That's fucking retarded."

Ok. Why exactly is that "fucking retarded"? Because they told you that in a course you took? What is a plausible worst loss estimate iyo?

KrazyHorse
19-06-2009, 00:58:22
^austrian lawyerspeak^

:)

Dyl Ulenspiegel
19-06-2009, 07:24:55
^canadian distractionspeak^

What is a plausible worst loss estimate iyo?

KrazyHorse
19-06-2009, 13:12:37
If the MBS wasn't cooking the books and was constructed according to a reasonably straightforward formula then I'd guess 30% or so (this is for simple pass-through MBS)

The tranching was 80% AAA, 20% lower grade as I understand it. If the underlying is so deep in the red then the loss rate for the lower grades is going to be close to total. Call it 80%. With this scenario (80% loss on lower grades, 30% on AAA) the loss on the underlying is going to be 0.8*0.2+0.3*0.8 = 0.40

Assuming a 0.9 loan balance at time of default to initial valuation ratio (this is ridiculously high) along with a 40% drop in house prices, a 50% foreclosure rate and that foreclosed homes can be resold at a 50% haircut relative to prevailing market value we only have a loss on the underlying of only 0.30

Can you please explain to me which of these numbers seems to skew my estimate of losses on vanilla MBS DOWNWARD from reality?

AAA tranche of vanilla MBS is pretty well protected from losses which exceed 20% or so. The other stuff which is sometimes referred to as MBS is not.

Dyl Ulenspiegel
19-06-2009, 14:56:58
There's not so much difference between a 30 and 50 % loss rate to justify your strong words, especially if you have to add two qualifications.


Not sure about your calculations, but on the crucial example:

Initial value 100
Underlying loan 90
One half is foreclosed (the other half stays current?)
The collateral is worth 50*0.6*0.5=15
In total, 60 can be collected
Assuming lower tranches absorb all losses, the loss is 12/72 ~ 17 %

Just 3 points that come to mind instantly:
- A 90% initial loan balance is not so absurd, especially if you consider appraisal fraud, option repayments, HELs and delays in evictions after default
- what makes you so sure no 2nd liens are in the underlying? Or that second liens have been absorbed into the first lien (that would raise the loan/asset ratio)?
- the non-foreclosed loans may well not be current and even without foreclosure will often undergo (possibly multiple) modifications where the lender takes a haircut

KrazyHorse
19-06-2009, 16:36:10
There's not so much difference between a 30 and 50 % loss rate to justify your strong words, especially if you have to add two qualifications.

30% is the ridiculous scenario. And there is a HUGE difference between 30% and 50% losses.

It's become fairly obvious that the only knowledge you have of these products has been gleaned from newspapers. And that you are having difficulty reading even these. Or my posts, for that matter. For example:

A 90% initial loan balance is not so absurd, especially if you consider appraisal fraud, option repayments, HELs and delays in evictions after default

I DIDN'T SAY 90% initial loan balance. I said 90% loan balance remaining at time of default. And this is an AVERAGE across all homes held in the underlying bonds. And delays in evictions are already included in my 50% recovery rate (which is usually defined as the present value at the time of initial default of all future cashflows resulting from settlement).

Dyl Ulenspiegel
19-06-2009, 17:23:41
"I DIDN'T SAY 90% initial loan balance. I said 90% loan balance remaining at time of default."

Yes. And I referred to the initial loan balance at default or foreclosure before recovery. How do you think "option repayments, HELs and delays in evictions after default" enter the original loan? Through a time machine?

The only point I was not sure about from your example was "Assuming a 0.9 loan balance at time of default to initial valuation ratio" - I assume the initial "true" (not necessarily the appraised) valuation of the underlying asset (house), or?

"And this is an AVERAGE across all homes held in the underlying bonds."

Yes. And? Btw, you mean the underlying mortgages?

I instantly admit that I do not understand most of your last post, apart from the ad hominems.

And your wording simply lacks precision. If you say "that foreclosed homes can be resold at a 50% haircut relative to prevailing market value" - you refer to the market price of foreclosed homes, which is not the recovery rate (sales price - costs) you mention in the next post. It's a bit funny that you read and write sloppily and use that to accuse me of a lack of understanding.

If my understanding of the matter is deficient, which it may well be, then enlighten me.

And you have not addressed the other points.

paiktis
19-06-2009, 21:00:42
if someone is bald how can he get a haircut?

Oerdin
20-06-2009, 05:53:58
What about the exotic MBSs? I hear the mix of debt obligations could get very wild on those and that more and more companies were issuing exotic MBSs before the bottom fell out of the market. I'm a bit worried that Obama is proposing only to regulate traditional MBSs (if there is such a thing) but leaving the more exotic stuff unregulated. That sounds kind of like a loop hole big enough to sail the entire royal navy through.