Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.[/quote]
OK, “bound” those cash flows and explain to me how there’s any equity left in a company that’s levered 13-1 in which the assets are worth less than 92% of their book value. Please show me the math as to how that works out. That’s a rhetorical request.
[quote=ucodegen]
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized. [/quote]
Servicing. Yeah, you just collect fees. It’s all candy and cake. Simplest business in the world. Do you know anyone who actually works in the serving industry? Servicing SUCKS right now. Why? Because servicing contracts are fixed fee contracts over long periods of time. When you’re collecting your 50 bps and delinquencies are 1%, yes, life is very good for servicers. When deliquencies are 5% and more and you have to hire a boatload more servicers to handle the extra workload – but you’re working on a fixed-fee contract – guess what? You’re losing money. And the only way to pretend that you’re making money is to revalue the servicing rights, which is just an accounting gimmick. One day servicing will be a decent business again. That day is a LONG way away.
I think there was some confusion regarding MAC clauses. I’ll assume that you understand that part, although your response in a previous post makes me wonder.
Countrywide was a horrible acquisition. BofA dramatically overpaid. I don’t know anyone in the business who doesn’t think so. Ken Lewis and a few sell-side shills are the only folks who are trying to spin Countrywide as a victory. Countrywide is one of the two reasons that Ken is being forced out. The second, and greater reason, is Merrill. That made a bad situation worse.
I’m not an expert on BofA. Then again, no one on the planet is, including the folks who work there. And that’s the problem. BofA is a giant black hole of risk that is unanalyzable. (Much like Merrill Lynch was. And how perfect… now they’re married.) No one can possibly understand that company enough to rationally invest money in it. Speculate? Absolutely. Invest? No way. Ask Warren Buffett… he’s only down 70% on his BofA position. In his defense, however, he purchased the stock before the Countrywide and Merrill acquisitions.
