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bsrsharma
ParticipantThis was posted on UT:
By EW on 08/22/2007
I unfortunately worked for a subprime lender for a short time (6 mos) before I decided to become an appraiser. Things are slower now, but I'm able to keep going OK because there aren't nearly as many appraisers and it's pretty difficult to become licensed.
Some things I took away from the experience: Every Tom Dick & Harry got into it- was a modern day gold rush for a time. Many only had high school education and did quite well, but spent nearly every dime they got. There are surely a lot of early BMW lease returns going on and most of these people will never make this kind of money again unless they go back to school and get a real education.
From my point of view, the whole subprime thing was mostly about taking advantage of unaware, uneducated, stupid, and lazy homeowners in a raging market. The ideal borrower would have a good amt of equity and a lot of debt, with low fico scores of course. We were trained to point out how their overall payments could be lowered by refinancing (paying off the mtg, cc debt, cars, etc), and they could also get cash out to enjoy life a little, go on that vacation you've been dreaming about, get a new car, etc. Never mind the fact that they ended up with a dangerous adjustable rate mtg which went back to 30 years in nearly every case, and just paid a whole bunch of fees to refi.
My questions are: Why didn't more people see this coming? Did homeowners think the market would magically increase by leaps & bounds from now to the end of time? Where were the finance media experts in all this and why didn't they warn homeowners?
ParticipantI suppose I shouldn't take the word collateral literally.
Yes; In the upside down world of financial engineering, debt is asset. Your continued indebtedness IS the collateral. Almost like slave trade!
ParticipantI suppose I shouldn't take the word collateral literally.
Yes; In the upside down world of financial engineering, debt is asset. Your continued indebtedness IS the collateral. Almost like slave trade!
ParticipantI suppose I shouldn't take the word collateral literally.
Yes; In the upside down world of financial engineering, debt is asset. Your continued indebtedness IS the collateral. Almost like slave trade!
ParticipantThis is from http://www.fool.com/investing/value/2007/06/27/securitization-simplified.aspx
So what the heck is a CDO, anyways?
Glad you asked. Let’s start with the basics of securitization, which is probably one of the most important developments in the financial world. Securitization, as you might have guessed, happens when you take a pool of assets that earn interest, like car loans, mortgages, or credit card debt, and package it into securities.
For example, Wall Street might take $800 million worth of credit card debt from 80,000 different people and package that into credit card asset backed securities (ABS). Whoever invests in this ABS gets paid dividends from the credit card borrowers as they pay their interest and principal. Wall Street gets a fee for overseeing this whole process, and the investor gets a yield-earning asset. Nice! For the most part, the credit card borrowers have no idea of what’s going on, as long as they keep making their payments
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Capital One takes a big pool of credit card debt, securitizes them into credit card ABS, and sells them to other people, like banks, pension funds, hedge funds, and insurance companies. The ABS investor gets the right to the yield, and Capital One often retains the rights to the excess cash flow (or any cash flow left over after the ABS investors are paid). The same process holds for mortgage loans in Countrywide’s case.The key here is that Capital One only retains a tiny portion of the ABS, so its credit risk is basically gone. This frees up its equity so it can go out and make more credit card loans and then securitize them again. Each time Capital One securitizes loans, it gets the rights to more residual cash flow.
Wal-Mart wants to sell its inventory as quickly as possible, because it earns a small margin on each item sold, and the more times inventory is turned over (sold), the more profit Wal-Mart makes. Similarly, financial service firms like Countrywide also want to sell their inventory of loans several times — via the process of securitization — to improve their returns.
ParticipantThis is from http://www.fool.com/investing/value/2007/06/27/securitization-simplified.aspx
So what the heck is a CDO, anyways?
Glad you asked. Let’s start with the basics of securitization, which is probably one of the most important developments in the financial world. Securitization, as you might have guessed, happens when you take a pool of assets that earn interest, like car loans, mortgages, or credit card debt, and package it into securities.
For example, Wall Street might take $800 million worth of credit card debt from 80,000 different people and package that into credit card asset backed securities (ABS). Whoever invests in this ABS gets paid dividends from the credit card borrowers as they pay their interest and principal. Wall Street gets a fee for overseeing this whole process, and the investor gets a yield-earning asset. Nice! For the most part, the credit card borrowers have no idea of what’s going on, as long as they keep making their payments
……
Capital One takes a big pool of credit card debt, securitizes them into credit card ABS, and sells them to other people, like banks, pension funds, hedge funds, and insurance companies. The ABS investor gets the right to the yield, and Capital One often retains the rights to the excess cash flow (or any cash flow left over after the ABS investors are paid). The same process holds for mortgage loans in Countrywide’s case.The key here is that Capital One only retains a tiny portion of the ABS, so its credit risk is basically gone. This frees up its equity so it can go out and make more credit card loans and then securitize them again. Each time Capital One securitizes loans, it gets the rights to more residual cash flow.
Wal-Mart wants to sell its inventory as quickly as possible, because it earns a small margin on each item sold, and the more times inventory is turned over (sold), the more profit Wal-Mart makes. Similarly, financial service firms like Countrywide also want to sell their inventory of loans several times — via the process of securitization — to improve their returns.
ParticipantThis is from http://www.fool.com/investing/value/2007/06/27/securitization-simplified.aspx
So what the heck is a CDO, anyways?
Glad you asked. Let’s start with the basics of securitization, which is probably one of the most important developments in the financial world. Securitization, as you might have guessed, happens when you take a pool of assets that earn interest, like car loans, mortgages, or credit card debt, and package it into securities.
For example, Wall Street might take $800 million worth of credit card debt from 80,000 different people and package that into credit card asset backed securities (ABS). Whoever invests in this ABS gets paid dividends from the credit card borrowers as they pay their interest and principal. Wall Street gets a fee for overseeing this whole process, and the investor gets a yield-earning asset. Nice! For the most part, the credit card borrowers have no idea of what’s going on, as long as they keep making their payments
……
Capital One takes a big pool of credit card debt, securitizes them into credit card ABS, and sells them to other people, like banks, pension funds, hedge funds, and insurance companies. The ABS investor gets the right to the yield, and Capital One often retains the rights to the excess cash flow (or any cash flow left over after the ABS investors are paid). The same process holds for mortgage loans in Countrywide’s case.The key here is that Capital One only retains a tiny portion of the ABS, so its credit risk is basically gone. This frees up its equity so it can go out and make more credit card loans and then securitize them again. Each time Capital One securitizes loans, it gets the rights to more residual cash flow.
Wal-Mart wants to sell its inventory as quickly as possible, because it earns a small margin on each item sold, and the more times inventory is turned over (sold), the more profit Wal-Mart makes. Similarly, financial service firms like Countrywide also want to sell their inventory of loans several times — via the process of securitization — to improve their returns.
ParticipantSame with me; I might have received one or two solicitations in about 2 weeks compared to the usual 6 or 8. But I did recieve an offer to refinance my mortgage, no questions asked. There will be lot less paper in the recycle bin in the future!
ParticipantSame with me; I might have received one or two solicitations in about 2 weeks compared to the usual 6 or 8. But I did recieve an offer to refinance my mortgage, no questions asked. There will be lot less paper in the recycle bin in the future!
ParticipantSame with me; I might have received one or two solicitations in about 2 weeks compared to the usual 6 or 8. But I did recieve an offer to refinance my mortgage, no questions asked. There will be lot less paper in the recycle bin in the future!
ParticipantJust like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.
FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.
ParticipantJust like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.
FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.
ParticipantJust like the illiquidity of CMOs is drying up non-conforming mortgage availability, illiquidity of CDOs will dry up credit card business by non-depository institutions. I am not sure if the CDO market is as stuck up right now as the CMO market. I think the consumers are not (yet) defaulting on their CC debt as much as on mortgages – may be they are thinking that foreclosure is a slow process compared to not being able to buy groceries. Also, I don’t think there is this huge exploding debt scenario like ARM resets. That should keep CC debt a bit more manageable.
FormerSD: Yes, at least some CC debt gets recycled via CDOs. Otherwise, non-depository institutions can’t issue consumer debt.
ParticipantI am curious to see the lenders behind these suspicious “Super Janae’s” sales. My guess is some of the lenders who may know they are going out of business may cut some Super Sweetheart deals with their friends. What do they lose if they lend a friend a million on a property worth half (based on a “friendly” appraisal) and go out of business next week? This was very common with S&Ls towards the end. Millions were loaned out on entirely worthless assets knowing FSLIC/FDIC may come soon. Of course, a few of them went to jail.
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