[quote=davelj]
My friends use things called “spreadsheets” and make simplifying (bearish) assumptions about the characteristics of the different portions of the pools. It’s not feel, but rather math. But, more specifically, you do have to make assumptions. That’s necessary for modeling purposes. And those (loss) assumptions will be based on default, foreclosure, and recovery assumptions. But if you define every assumption in the financial world as a “feeling” – which is fine – and therefore not to be used or trusted (which is the implication of your post), then I assume all of your money is in your mattress at home. Because assumptions (“feelings” in your parlance) are how assets get valued. By all means, feel free to do your own analysis on this pool. Yes, there are people doing this. (Wasn’t that obvious from my post?) Yes, it’s worth doing (again… not obvious from my post?). Well at least to some folks apparently.[/quote]
How do they get the recovery assumptions? Are they actually evaluating the individual properties in each pool or are they doing something else? Do you agree that using some type of rent multiplier is a good way to value a property?
Did I understand your original post correctly, in that there are the potential for 25% annual returns? And the reason banks can’t buy this stuff and get those 25% returns is because if the marks keep going down then they will have to engage in some kind of fire sale? Interesting. So are you investing with your own private capital then?
Since you think mark-to-market is a bad idea, do you think the creation of a US Prime Mortgage Security Index as described by Mr. Mortgage in this post is a bad idea?
Everyone says ‘the market is dysfunctional and irrational’ when referring to performing/non-performing whole loans and mortgage backed bonds. This is absolutely not the truth. The market is fully functional at the right price.
At the right price, there are plenty of funds who will buy hundreds of millions of loans and MBS’s and do the right thing with them. I personally know of many. Vultures do not kill things, they clean up the mess. We should be relying on the distressed players more in the clean-up of the mortgage mess.
…
This story and my input above is also exactly why ‘market participants’ have somehow forced Markit to pull the release of their new US Prime Mortgage Security Index. Markit are the creators of the well-known ABX index that did such a great job shedding light on what was really happening in the Subprime market. For a year, the pundits made Markit out to be a chop shop but in the end they were correct as were most waiving flags two years ago.
By the way, I’m not trying to be a smartass here, I’m just trying to reconcile your view with Mr. Mortgages, as both of you seem to be knowledgeable in this area.
