[bsrsharma]

he is telling lenders to work with these people to keep them in their homes by offering them better mortgage deals

Does he realize that all those mortgages have been reformulated as CDO/CMOs and as it is they are illiquid now? Adding more variables in the form of lower yields, stretching out the loan term etc., will make them all completely worthless. That is many Trillions of $ gone. Mortgages will become simply unavailable. That will kill the housing market. He should use his head before opening his mouth.

[bsrsharma]

he is telling lenders to work with these people to keep them in their homes by offering them better mortgage deals

Does he realize that all those mortgages have been reformulated as CDO/CMOs and as it is they are illiquid now? Adding more variables in the form of lower yields, stretching out the loan term etc., will make them all completely worthless. That is many Trillions of $ gone. Mortgages will become simply unavailable. That will kill the housing market. He should use his head before opening his mouth.

[bsrsharma]

I think you may be better off with some professional advice on complex commercial transactions like that.

[bsrsharma]

I think you may be better off with some professional advice on complex commercial transactions like that.

[bsrsharma]

I think you may be better off with some professional advice on complex commercial transactions like that.

[bsrsharma]

jennyo: Agreed, the inheritance is all gravy for you; but I don’t think the market is very aware of it or responding to it. Do you think people didn’t make offers (at higher prices), just because it is an estate sale? You are flexible on price, but still you would like to get the best price you can get on the house. That is how markets are made. I am simply pointing out how ridiculous (at least the last years) appraisals look now.

[bsrsharma]

jennyo: Agreed, the inheritance is all gravy for you; but I don’t think the market is very aware of it or responding to it. Do you think people didn’t make offers (at higher prices), just because it is an estate sale? You are flexible on price, but still you would like to get the best price you can get on the house. That is how markets are made. I am simply pointing out how ridiculous (at least the last years) appraisals look now.

[bsrsharma]

jennyo: Agreed, the inheritance is all gravy for you; but I don’t think the market is very aware of it or responding to it. Do you think people didn’t make offers (at higher prices), just because it is an estate sale? You are flexible on price, but still you would like to get the best price you can get on the house. That is how markets are made. I am simply pointing out how ridiculous (at least the last years) appraisals look now.

[bsrsharma]

385K appraisal last year to 215K counter from sellers with concessions added. That too in the Greater Bay area. This may be used as an example whenever anyone denies we are in a fundamental repricing of homes. And we are still in Act I, Scene I of the drama.

[bsrsharma]

385K appraisal last year to 215K counter from sellers with concessions added. That too in the Greater Bay area. This may be used as an example whenever anyone denies we are in a fundamental repricing of homes. And we are still in Act I, Scene I of the drama.

[bsrsharma]

385K appraisal last year to 215K counter from sellers with concessions added. That too in the Greater Bay area. This may be used as an example whenever anyone denies we are in a fundamental repricing of homes. And we are still in Act I, Scene I of the drama.

[bsrsharma]

Is it too much to ask to understand your job?

I think their (at least many of them) job itself is a giant groupthink based on unwarranted optimism, manipulation of people's emotion using home, family, stability, financial upward mobility based on equity buildup/leverage, tax advantage etc., factors. That blinds them into not seeing the obvious financial crisis that an outsider detached from the market can see. That is why you see many Realtors themselves caught in the vortex of flipping. They were not just preaching irrational exuberance, but actively practicing it. After we had our difficulties selling, a friend of ours – a realtor, who knew our experience – bought in Carlsbad for "investment".

[bsrsharma]

Is it too much to ask to understand your job?

I think their (at least many of them) job itself is a giant groupthink based on unwarranted optimism, manipulation of people's emotion using home, family, stability, financial upward mobility based on equity buildup/leverage, tax advantage etc., factors. That blinds them into not seeing the obvious financial crisis that an outsider detached from the market can see. That is why you see many Realtors themselves caught in the vortex of flipping. They were not just preaching irrational exuberance, but actively practicing it. After we had our difficulties selling, a friend of ours – a realtor, who knew our experience – bought in Carlsbad for "investment".

[bsrsharma]

Is it too much to ask to understand your job?

I think their (at least many of them) job itself is a giant groupthink based on unwarranted optimism, manipulation of people's emotion using home, family, stability, financial upward mobility based on equity buildup/leverage, tax advantage etc., factors. That blinds them into not seeing the obvious financial crisis that an outsider detached from the market can see. That is why you see many Realtors themselves caught in the vortex of flipping. They were not just preaching irrational exuberance, but actively practicing it. After we had our difficulties selling, a friend of ours – a realtor, who knew our experience – bought in Carlsbad for "investment".

[bsrsharma]

TheBreeze,

I think you will find the posts at

http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html

pretty informative. The brief story is, there is no simple relationship between Joe’s mortgage and the CDO/CMO held by a fund. The mortgage is sliced into “Tranches” and reassembled with similar and dissimilar debt intruments. It is these new synthetic securities that are bought by the funds. As you can see, the risk computation on these synthetic securities is very complicated, and hence it is done based on computer simulations of various combinations of price appreciation, interest rate increases and (debt) default rates and other probabilities. The problem in the CDO industry now is that these models have been found to be incorrect and were based on a shallow horizon of past few years with increasing home prices, low interest rates and low defaults. Once those conditions are reversed, the models are collapsing and are basically telling that these CDOs are not valuable. That is the root cause of the whole mess now. In the absence of securitization and resultant market for them, there is no secondary market. Without secondary market, the only mortgages are those sellable to GSEs (Fannie/Freddie/Ginnie etc.,).

So, the final answer to your original question is that there is no direct correspodence between the interest rate the borrower pays at any time and what the CDO holder gets because they get decoupled during the securitization process. It is like your cow may eat some spoiled grain but you will still get drinkable milk. But that model fails if the cow dies due to food poisoning. We are seeing a lot of cows sick or dying because the dairy farmers got greedy and started to think cows can convert any thrash into milk and started feeding them more thrash and less grain. That is now causing a rise in milk prices.

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