CA Shadow Inventory

[davelj]

[quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.

[analyst]

[quote=davelj][quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.[/quote]

Yes, ownership of mortgage-backed securities is distributed around the world in many different kinds of organizations. Since the face value was 7.5 trillion dollars at the end of 2008 according to the Federal Reserve statistics, it does not require a high percentage of them to behave abnormally to have a market-altering effect.

—–

It is correct that a partial owner of a mortgage-backed security pool does not have direct control. However I am confident that the 100% owner of a mortgage-backed security pool can make whatever agreement between owner and servicer that the owner is willing to pay the fees for. The same would be true if all the partial owners agreed on a course of action.

—–

Davelj continues to focus on banks.

I have carefully chosen variations of the word “owner” or “holder” rather than “bank”, “lender”, or “investor” for a reason.

The mechanism which matters the most is one I hesitated to go into before, because it is unregulated and its actions are therefore undocumented (to the general public), and proof of any assertion, and rebuttal of any denial, is impossible for an outsider.

The big players bought credit default swaps (CDS) to hedge their financial interests in mortgage-backed securities (MBS). When an entity protected by a CDS suffers a loss on an MBS, and the claim is settled, the settlement may be either of type “cash” or “physical”.

Where there is an active market, the CDS seller pays the CDS buyer the difference between the face value and the market value. For the inactive/illiquid MBS under discussion here, there is no usable market value, cash settlement is not possible, and physical settlement occurs.

Physical settlement means that the CDS seller pays the CDS buyer face value, and takes ownership of the MBS.

AIG was the main player selling CDS coverage to MBS creators and buyers. When the real-estate bubble Ponzi scheme stalled, then collapsed, MBS values were impaired to the degree that massive CDS claims were triggered. AIG became suddenly, hopelessly insolvent. To prevent the effect of AIG failure from cascading through the world financial systems, the federal government took over and arranged for massive amounts of money to flow into AIG to allow the settlement of CDS claims. As usual, the amount of money required was initially underestimated (or at least understated), and multiple cash infusions are now up near a couple of hundred billion dollars. There may well be more in the future.

The settlement of these CDS claims via physical settlement resulted in AIG (read as the federal government) being the sole owner of a massive volume of MBS, now in a position to directly arrange for the managers/servicers of those MBS mortgages to carry out their desired policy.

[analyst]

[quote=davelj][quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.[/quote]

Yes, ownership of mortgage-backed securities is distributed around the world in many different kinds of organizations. Since the face value was 7.5 trillion dollars at the end of 2008 according to the Federal Reserve statistics, it does not require a high percentage of them to behave abnormally to have a market-altering effect.

—–

It is correct that a partial owner of a mortgage-backed security pool does not have direct control. However I am confident that the 100% owner of a mortgage-backed security pool can make whatever agreement between owner and servicer that the owner is willing to pay the fees for. The same would be true if all the partial owners agreed on a course of action.

—–

Davelj continues to focus on banks.

I have carefully chosen variations of the word “owner” or “holder” rather than “bank”, “lender”, or “investor” for a reason.

The mechanism which matters the most is one I hesitated to go into before, because it is unregulated and its actions are therefore undocumented (to the general public), and proof of any assertion, and rebuttal of any denial, is impossible for an outsider.

The big players bought credit default swaps (CDS) to hedge their financial interests in mortgage-backed securities (MBS). When an entity protected by a CDS suffers a loss on an MBS, and the claim is settled, the settlement may be either of type “cash” or “physical”.

Where there is an active market, the CDS seller pays the CDS buyer the difference between the face value and the market value. For the inactive/illiquid MBS under discussion here, there is no usable market value, cash settlement is not possible, and physical settlement occurs.

Physical settlement means that the CDS seller pays the CDS buyer face value, and takes ownership of the MBS.

AIG was the main player selling CDS coverage to MBS creators and buyers. When the real-estate bubble Ponzi scheme stalled, then collapsed, MBS values were impaired to the degree that massive CDS claims were triggered. AIG became suddenly, hopelessly insolvent. To prevent the effect of AIG failure from cascading through the world financial systems, the federal government took over and arranged for massive amounts of money to flow into AIG to allow the settlement of CDS claims. As usual, the amount of money required was initially underestimated (or at least understated), and multiple cash infusions are now up near a couple of hundred billion dollars. There may well be more in the future.

The settlement of these CDS claims via physical settlement resulted in AIG (read as the federal government) being the sole owner of a massive volume of MBS, now in a position to directly arrange for the managers/servicers of those MBS mortgages to carry out their desired policy.

[analyst]

[quote=davelj][quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.[/quote]

Yes, ownership of mortgage-backed securities is distributed around the world in many different kinds of organizations. Since the face value was 7.5 trillion dollars at the end of 2008 according to the Federal Reserve statistics, it does not require a high percentage of them to behave abnormally to have a market-altering effect.

—–

It is correct that a partial owner of a mortgage-backed security pool does not have direct control. However I am confident that the 100% owner of a mortgage-backed security pool can make whatever agreement between owner and servicer that the owner is willing to pay the fees for. The same would be true if all the partial owners agreed on a course of action.

—–

Davelj continues to focus on banks.

I have carefully chosen variations of the word “owner” or “holder” rather than “bank”, “lender”, or “investor” for a reason.

The mechanism which matters the most is one I hesitated to go into before, because it is unregulated and its actions are therefore undocumented (to the general public), and proof of any assertion, and rebuttal of any denial, is impossible for an outsider.

The big players bought credit default swaps (CDS) to hedge their financial interests in mortgage-backed securities (MBS). When an entity protected by a CDS suffers a loss on an MBS, and the claim is settled, the settlement may be either of type “cash” or “physical”.

Where there is an active market, the CDS seller pays the CDS buyer the difference between the face value and the market value. For the inactive/illiquid MBS under discussion here, there is no usable market value, cash settlement is not possible, and physical settlement occurs.

Physical settlement means that the CDS seller pays the CDS buyer face value, and takes ownership of the MBS.

AIG was the main player selling CDS coverage to MBS creators and buyers. When the real-estate bubble Ponzi scheme stalled, then collapsed, MBS values were impaired to the degree that massive CDS claims were triggered. AIG became suddenly, hopelessly insolvent. To prevent the effect of AIG failure from cascading through the world financial systems, the federal government took over and arranged for massive amounts of money to flow into AIG to allow the settlement of CDS claims. As usual, the amount of money required was initially underestimated (or at least understated), and multiple cash infusions are now up near a couple of hundred billion dollars. There may well be more in the future.

The settlement of these CDS claims via physical settlement resulted in AIG (read as the federal government) being the sole owner of a massive volume of MBS, now in a position to directly arrange for the managers/servicers of those MBS mortgages to carry out their desired policy.

[analyst]

[quote=davelj][quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.[/quote]

Yes, ownership of mortgage-backed securities is distributed around the world in many different kinds of organizations. Since the face value was 7.5 trillion dollars at the end of 2008 according to the Federal Reserve statistics, it does not require a high percentage of them to behave abnormally to have a market-altering effect.

—–

It is correct that a partial owner of a mortgage-backed security pool does not have direct control. However I am confident that the 100% owner of a mortgage-backed security pool can make whatever agreement between owner and servicer that the owner is willing to pay the fees for. The same would be true if all the partial owners agreed on a course of action.

—–

Davelj continues to focus on banks.

I have carefully chosen variations of the word “owner” or “holder” rather than “bank”, “lender”, or “investor” for a reason.

The mechanism which matters the most is one I hesitated to go into before, because it is unregulated and its actions are therefore undocumented (to the general public), and proof of any assertion, and rebuttal of any denial, is impossible for an outsider.

The big players bought credit default swaps (CDS) to hedge their financial interests in mortgage-backed securities (MBS). When an entity protected by a CDS suffers a loss on an MBS, and the claim is settled, the settlement may be either of type “cash” or “physical”.

Where there is an active market, the CDS seller pays the CDS buyer the difference between the face value and the market value. For the inactive/illiquid MBS under discussion here, there is no usable market value, cash settlement is not possible, and physical settlement occurs.

Physical settlement means that the CDS seller pays the CDS buyer face value, and takes ownership of the MBS.

AIG was the main player selling CDS coverage to MBS creators and buyers. When the real-estate bubble Ponzi scheme stalled, then collapsed, MBS values were impaired to the degree that massive CDS claims were triggered. AIG became suddenly, hopelessly insolvent. To prevent the effect of AIG failure from cascading through the world financial systems, the federal government took over and arranged for massive amounts of money to flow into AIG to allow the settlement of CDS claims. As usual, the amount of money required was initially underestimated (or at least understated), and multiple cash infusions are now up near a couple of hundred billion dollars. There may well be more in the future.

The settlement of these CDS claims via physical settlement resulted in AIG (read as the federal government) being the sole owner of a massive volume of MBS, now in a position to directly arrange for the managers/servicers of those MBS mortgages to carry out their desired policy.

[analyst]

[quote=davelj][quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.

The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.

So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]

That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.

Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.[/quote]

Yes, ownership of mortgage-backed securities is distributed around the world in many different kinds of organizations. Since the face value was 7.5 trillion dollars at the end of 2008 according to the Federal Reserve statistics, it does not require a high percentage of them to behave abnormally to have a market-altering effect.

—–

It is correct that a partial owner of a mortgage-backed security pool does not have direct control. However I am confident that the 100% owner of a mortgage-backed security pool can make whatever agreement between owner and servicer that the owner is willing to pay the fees for. The same would be true if all the partial owners agreed on a course of action.

—–

Davelj continues to focus on banks.

I have carefully chosen variations of the word “owner” or “holder” rather than “bank”, “lender”, or “investor” for a reason.

The mechanism which matters the most is one I hesitated to go into before, because it is unregulated and its actions are therefore undocumented (to the general public), and proof of any assertion, and rebuttal of any denial, is impossible for an outsider.

The big players bought credit default swaps (CDS) to hedge their financial interests in mortgage-backed securities (MBS). When an entity protected by a CDS suffers a loss on an MBS, and the claim is settled, the settlement may be either of type “cash” or “physical”.

Where there is an active market, the CDS seller pays the CDS buyer the difference between the face value and the market value. For the inactive/illiquid MBS under discussion here, there is no usable market value, cash settlement is not possible, and physical settlement occurs.

Physical settlement means that the CDS seller pays the CDS buyer face value, and takes ownership of the MBS.

AIG was the main player selling CDS coverage to MBS creators and buyers. When the real-estate bubble Ponzi scheme stalled, then collapsed, MBS values were impaired to the degree that massive CDS claims were triggered. AIG became suddenly, hopelessly insolvent. To prevent the effect of AIG failure from cascading through the world financial systems, the federal government took over and arranged for massive amounts of money to flow into AIG to allow the settlement of CDS claims. As usual, the amount of money required was initially underestimated (or at least understated), and multiple cash infusions are now up near a couple of hundred billion dollars. There may well be more in the future.

The settlement of these CDS claims via physical settlement resulted in AIG (read as the federal government) being the sole owner of a massive volume of MBS, now in a position to directly arrange for the managers/servicers of those MBS mortgages to carry out their desired policy.

[SD Realtor]

Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.

[SD Realtor]

Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.

[SD Realtor]

Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.

[SD Realtor]

Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.

[SD Realtor]

Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.

[analyst]

[quote=SD Realtor]Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.[/quote]

The duties and responsibilities of the servicer are defined in a formal servicing agreement. Where a servicing agreement clearly specifies a required action, that is what the servicer must do. When decisions must be made for situations not clearly specified in the servicing agreement, the servicer is required to act in the best interest of those having a beneficial interest in the pool, the investors and insurers (if a credit default swap is involved).

As long as both investors and insurers are involved, it is very dangerous for servicers to depart from normal standard practices, for fear that one or the other will sue for damages.

For an MBS pool in trouble, as soon as the insurer (AIG) executes a physical settlement (buys all the securities at face value from the former investors), all beneficial interest is consolidated in one place (AIG), and that is to whom the servicer becomes responsible.

Without knowing the exact mechanics of how the conversation and paperwork handling takes place, I am confident that AIG and, therefore, the federal government owners, have the ability to directly bring about whatever action they desire on the mortgages in that troubled pool, provided they are willing to pay increased fees for increased effort by the servicer.

I would expect that for pools with no CDS insurance involvement, those demonstrating 100% ownership, whether a single investor or a multiple-investor group, would have the same ability.

Clearly, different servicers are going to have different views about how much effort is involved in any particular modification approach, and different views about what fees are appropriate for any given estimated level of effort. So not all discussions will result in similar agreements between servicer and the beneficial owner(s). That is why you see such wide variety in the handling of individual mortgages. Each separate combination of servicer and beneficial owner is a separate discussion/negotiation.

The real x-factor, and the reason why the assessment of shadow inventory is a necessary endeavor, is because each separate beneficial owner or owner-group presumably would have the option to implement a temporary go-slow approach with a servicer, to evaluate the effects, without undoing normal foreclosure as the underlying default rule. If go-slow turned out to be not to their liking, they would just let the temporary go-slow agreement expire and revert to underlying baseline rules, an increase in foreclosure pace being the result.

Note that the Federal Reserve is well along in its plan to buy over 1 trillion dollars of MBS. It is not clear whether the Federal Reserve is the first and only investor buying direct from creators, or whether they are buying existing from prior investors. The Federal Reserve may wind up being the largest single owner of MBS. Although broadly considered to be part of the federal government, the decision makers are different from those in direct control of AIG, so there could be differences in opinion and policy as time goes by.

The Federal Reserve may decide at some future time to sell its MBS holdings to arms-length investors at a discount from face value. This would be one method of recalling some percentage of the vast amount of money it printed to buy the MBS.

Would the new investors be adopting the collect-the-payments approach or the foreclosure approach? The answer depends on the level of discount from face-value set by the Federal Reserve. What is the effect of the Federal Reserve losing money (that it printed) by paying more for the MBS than it subsequently received by selling them back into the market? How will the Federal Reserve determine the price at which it will sell the MBS? How far into the future will this happen? Who will be the Federal Reserve chairman at the time.?

Time for everybody to input information into their computers for the mark-to-model calculation.

[analyst]

[quote=SD Realtor]Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.[/quote]

The duties and responsibilities of the servicer are defined in a formal servicing agreement. Where a servicing agreement clearly specifies a required action, that is what the servicer must do. When decisions must be made for situations not clearly specified in the servicing agreement, the servicer is required to act in the best interest of those having a beneficial interest in the pool, the investors and insurers (if a credit default swap is involved).

As long as both investors and insurers are involved, it is very dangerous for servicers to depart from normal standard practices, for fear that one or the other will sue for damages.

For an MBS pool in trouble, as soon as the insurer (AIG) executes a physical settlement (buys all the securities at face value from the former investors), all beneficial interest is consolidated in one place (AIG), and that is to whom the servicer becomes responsible.

Without knowing the exact mechanics of how the conversation and paperwork handling takes place, I am confident that AIG and, therefore, the federal government owners, have the ability to directly bring about whatever action they desire on the mortgages in that troubled pool, provided they are willing to pay increased fees for increased effort by the servicer.

I would expect that for pools with no CDS insurance involvement, those demonstrating 100% ownership, whether a single investor or a multiple-investor group, would have the same ability.

Clearly, different servicers are going to have different views about how much effort is involved in any particular modification approach, and different views about what fees are appropriate for any given estimated level of effort. So not all discussions will result in similar agreements between servicer and the beneficial owner(s). That is why you see such wide variety in the handling of individual mortgages. Each separate combination of servicer and beneficial owner is a separate discussion/negotiation.

The real x-factor, and the reason why the assessment of shadow inventory is a necessary endeavor, is because each separate beneficial owner or owner-group presumably would have the option to implement a temporary go-slow approach with a servicer, to evaluate the effects, without undoing normal foreclosure as the underlying default rule. If go-slow turned out to be not to their liking, they would just let the temporary go-slow agreement expire and revert to underlying baseline rules, an increase in foreclosure pace being the result.

Note that the Federal Reserve is well along in its plan to buy over 1 trillion dollars of MBS. It is not clear whether the Federal Reserve is the first and only investor buying direct from creators, or whether they are buying existing from prior investors. The Federal Reserve may wind up being the largest single owner of MBS. Although broadly considered to be part of the federal government, the decision makers are different from those in direct control of AIG, so there could be differences in opinion and policy as time goes by.

The Federal Reserve may decide at some future time to sell its MBS holdings to arms-length investors at a discount from face value. This would be one method of recalling some percentage of the vast amount of money it printed to buy the MBS.

Would the new investors be adopting the collect-the-payments approach or the foreclosure approach? The answer depends on the level of discount from face-value set by the Federal Reserve. What is the effect of the Federal Reserve losing money (that it printed) by paying more for the MBS than it subsequently received by selling them back into the market? How will the Federal Reserve determine the price at which it will sell the MBS? How far into the future will this happen? Who will be the Federal Reserve chairman at the time.?

Time for everybody to input information into their computers for the mark-to-model calculation.

[analyst]

[quote=SD Realtor]Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.[/quote]

The duties and responsibilities of the servicer are defined in a formal servicing agreement. Where a servicing agreement clearly specifies a required action, that is what the servicer must do. When decisions must be made for situations not clearly specified in the servicing agreement, the servicer is required to act in the best interest of those having a beneficial interest in the pool, the investors and insurers (if a credit default swap is involved).

As long as both investors and insurers are involved, it is very dangerous for servicers to depart from normal standard practices, for fear that one or the other will sue for damages.

For an MBS pool in trouble, as soon as the insurer (AIG) executes a physical settlement (buys all the securities at face value from the former investors), all beneficial interest is consolidated in one place (AIG), and that is to whom the servicer becomes responsible.

Without knowing the exact mechanics of how the conversation and paperwork handling takes place, I am confident that AIG and, therefore, the federal government owners, have the ability to directly bring about whatever action they desire on the mortgages in that troubled pool, provided they are willing to pay increased fees for increased effort by the servicer.

I would expect that for pools with no CDS insurance involvement, those demonstrating 100% ownership, whether a single investor or a multiple-investor group, would have the same ability.

Clearly, different servicers are going to have different views about how much effort is involved in any particular modification approach, and different views about what fees are appropriate for any given estimated level of effort. So not all discussions will result in similar agreements between servicer and the beneficial owner(s). That is why you see such wide variety in the handling of individual mortgages. Each separate combination of servicer and beneficial owner is a separate discussion/negotiation.

The real x-factor, and the reason why the assessment of shadow inventory is a necessary endeavor, is because each separate beneficial owner or owner-group presumably would have the option to implement a temporary go-slow approach with a servicer, to evaluate the effects, without undoing normal foreclosure as the underlying default rule. If go-slow turned out to be not to their liking, they would just let the temporary go-slow agreement expire and revert to underlying baseline rules, an increase in foreclosure pace being the result.

Note that the Federal Reserve is well along in its plan to buy over 1 trillion dollars of MBS. It is not clear whether the Federal Reserve is the first and only investor buying direct from creators, or whether they are buying existing from prior investors. The Federal Reserve may wind up being the largest single owner of MBS. Although broadly considered to be part of the federal government, the decision makers are different from those in direct control of AIG, so there could be differences in opinion and policy as time goes by.

The Federal Reserve may decide at some future time to sell its MBS holdings to arms-length investors at a discount from face value. This would be one method of recalling some percentage of the vast amount of money it printed to buy the MBS.

Would the new investors be adopting the collect-the-payments approach or the foreclosure approach? The answer depends on the level of discount from face-value set by the Federal Reserve. What is the effect of the Federal Reserve losing money (that it printed) by paying more for the MBS than it subsequently received by selling them back into the market? How will the Federal Reserve determine the price at which it will sell the MBS? How far into the future will this happen? Who will be the Federal Reserve chairman at the time.?

Time for everybody to input information into their computers for the mark-to-model calculation.

[analyst]

[quote=SD Realtor]Analyst or Dave –

At alot of the auctions I am attending I would say the postponement rate is close to 90%. Now for alot of those they are postponed as short sales and thus the servicer is unwinding them. Another albeit smaller percentages is BK… No mystery of what is happening there. However there are plenty of beneficiary requests as well. Now in these cases I would presume a loan mod effort is underway but I am pessimistic about the numbers.

Dave you implied earlier that the bene does not have the authority or power to control the servicer entity, that the servicer will follow through with the foreclosure no matter what. Obviously it is the path of least resistance for the servicer to do this. Yet it does seem to me that if the bene wanted to, they could indeed work with the servicer to slow down the process, adding to the shadow inventory.

So I guess my question to either of you is how much autonomy does the servicer have. Dave your implication (and pardon if I got it incorrectly) to me appears to be that the servicer has substantial autonomy and is happy foreclosing and passing the dead asset back to the bene.[/quote]

The duties and responsibilities of the servicer are defined in a formal servicing agreement. Where a servicing agreement clearly specifies a required action, that is what the servicer must do. When decisions must be made for situations not clearly specified in the servicing agreement, the servicer is required to act in the best interest of those having a beneficial interest in the pool, the investors and insurers (if a credit default swap is involved).

As long as both investors and insurers are involved, it is very dangerous for servicers to depart from normal standard practices, for fear that one or the other will sue for damages.

For an MBS pool in trouble, as soon as the insurer (AIG) executes a physical settlement (buys all the securities at face value from the former investors), all beneficial interest is consolidated in one place (AIG), and that is to whom the servicer becomes responsible.

Without knowing the exact mechanics of how the conversation and paperwork handling takes place, I am confident that AIG and, therefore, the federal government owners, have the ability to directly bring about whatever action they desire on the mortgages in that troubled pool, provided they are willing to pay increased fees for increased effort by the servicer.

I would expect that for pools with no CDS insurance involvement, those demonstrating 100% ownership, whether a single investor or a multiple-investor group, would have the same ability.

Clearly, different servicers are going to have different views about how much effort is involved in any particular modification approach, and different views about what fees are appropriate for any given estimated level of effort. So not all discussions will result in similar agreements between servicer and the beneficial owner(s). That is why you see such wide variety in the handling of individual mortgages. Each separate combination of servicer and beneficial owner is a separate discussion/negotiation.

The real x-factor, and the reason why the assessment of shadow inventory is a necessary endeavor, is because each separate beneficial owner or owner-group presumably would have the option to implement a temporary go-slow approach with a servicer, to evaluate the effects, without undoing normal foreclosure as the underlying default rule. If go-slow turned out to be not to their liking, they would just let the temporary go-slow agreement expire and revert to underlying baseline rules, an increase in foreclosure pace being the result.

Note that the Federal Reserve is well along in its plan to buy over 1 trillion dollars of MBS. It is not clear whether the Federal Reserve is the first and only investor buying direct from creators, or whether they are buying existing from prior investors. The Federal Reserve may wind up being the largest single owner of MBS. Although broadly considered to be part of the federal government, the decision makers are different from those in direct control of AIG, so there could be differences in opinion and policy as time goes by.

The Federal Reserve may decide at some future time to sell its MBS holdings to arms-length investors at a discount from face value. This would be one method of recalling some percentage of the vast amount of money it printed to buy the MBS.

Would the new investors be adopting the collect-the-payments approach or the foreclosure approach? The answer depends on the level of discount from face-value set by the Federal Reserve. What is the effect of the Federal Reserve losing money (that it printed) by paying more for the MBS than it subsequently received by selling them back into the market? How will the Federal Reserve determine the price at which it will sell the MBS? How far into the future will this happen? Who will be the Federal Reserve chairman at the time.?

Time for everybody to input information into their computers for the mark-to-model calculation.

[Author]

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