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DaCounselor
Participant“A co-worker asked me if there were any way to short this market. I said I didn’t think so, at least for retail investors like him/me. Are there ways for large institutional investors to do this? Are there any funds out there that are short on RMBS CDOs?”
______________________________The answer to your first question is yes, by way of credit default swaps (CDS). This has been going on for some time now and the value of CDS’s for the riskiest CDO tranches has risen dramatically. A tidy profit can be made from selling previously purchased CDS’s, but the real $$ stands to be made after the defaults.
I am unaware of any readily accessible fund that an individual investor can buy into that specifically holds CDS’s on RMBS CDO tranches.
The potential for collusion in this investment area is extremely high. Anyone who finds access to invest in CDS’s is best advised to educate themself on all the angles before plunging in.
Participant“A co-worker asked me if there were any way to short this market. I said I didn’t think so, at least for retail investors like him/me. Are there ways for large institutional investors to do this? Are there any funds out there that are short on RMBS CDOs?”
______________________________The answer to your first question is yes, by way of credit default swaps (CDS). This has been going on for some time now and the value of CDS’s for the riskiest CDO tranches has risen dramatically. A tidy profit can be made from selling previously purchased CDS’s, but the real $$ stands to be made after the defaults.
I am unaware of any readily accessible fund that an individual investor can buy into that specifically holds CDS’s on RMBS CDO tranches.
The potential for collusion in this investment area is extremely high. Anyone who finds access to invest in CDS’s is best advised to educate themself on all the angles before plunging in.
ParticipantI think we will continue to see problems in the Alt-A market. My guess is based upon the presumption that some % of strong credit/higher income folks used low doc/no doc to secure funding and stretched to buy the bigger, better home. It will be interesting to see what the default rate will ultimately be in the Alt-A universe.
ParticipantI think we will continue to see problems in the Alt-A market. My guess is based upon the presumption that some % of strong credit/higher income folks used low doc/no doc to secure funding and stretched to buy the bigger, better home. It will be interesting to see what the default rate will ultimately be in the Alt-A universe.
Participant“I can’t believe we don’t have absolutely huge hedge funds blowing up right now.”
________________________________Keep in mind that many hedgies were on the leading edge of shorting subprime paper over a year ago via credit default swaps. That sub-market has exploded (and the cost of CDS’s has risen accordingly) in conjunction with increasing demand to place bets against subprime borrowers.
Bottom line being that many hedgies stand to realize massive windfall CDS profits when the defaults occur and the insurance has to pay up.
Participant“I can’t believe we don’t have absolutely huge hedge funds blowing up right now.”
________________________________Keep in mind that many hedgies were on the leading edge of shorting subprime paper over a year ago via credit default swaps. That sub-market has exploded (and the cost of CDS’s has risen accordingly) in conjunction with increasing demand to place bets against subprime borrowers.
Bottom line being that many hedgies stand to realize massive windfall CDS profits when the defaults occur and the insurance has to pay up.
July 16, 2007 at 3:20 PM in reply to: How much will tougher Freddie & Fannie underwriting standards affect prices? #66041ParticipantGood point Andy. I think FM’s conforming 1st mtg limit is $417K. This probably took them out of play to some extent on the 1st mtgs – how much, I don’t know. You could have a $417K conforming 1st (80% ltv) and a $104K 2nd (20%) for a total of $521K and FM would be able to purchase. FM very well may have more exposure on 2nds in Cali as their conforming cap for 2nds is $208K.
The “push-back” continues, Allan. It’s going to be an interesting ride.
July 16, 2007 at 3:20 PM in reply to: How much will tougher Freddie & Fannie underwriting standards affect prices? #66106ParticipantGood point Andy. I think FM’s conforming 1st mtg limit is $417K. This probably took them out of play to some extent on the 1st mtgs – how much, I don’t know. You could have a $417K conforming 1st (80% ltv) and a $104K 2nd (20%) for a total of $521K and FM would be able to purchase. FM very well may have more exposure on 2nds in Cali as their conforming cap for 2nds is $208K.
The “push-back” continues, Allan. It’s going to be an interesting ride.
July 16, 2007 at 2:11 PM in reply to: How much will tougher Freddie & Fannie underwriting standards affect prices? #66025ParticipantIs it just me or is the linked “article” somewhat rambling and incoherent?
As far as what happened, yes Fannie & Freddie have offically stated that they will follow the Interagency Guidance on Nontraditional Mortgage Product Risk prescription. And it is mostly that – a general prescription. The only real bright-line requirement is that borrowers utilizing “non-traditional” mortgages (aka products where either principal or interest are deferred) must be qualified at the fully indexed rate with a fully amortizing payoff.
The result is intended to be the avoidence of unaffordable exploding ARMS. The initial tertiary result is credit contraction in the sense that the borrower can’t qualify for as much $$ in the fully-indexed fully amortizing scenario.
Of course, the guidance has no specific requirements for critical aspects such as debt-to-income ratios and stated income – leaving loopholes large enough to drive a truck through.
Nevertheless, I think we are and will continue to see credit contraction as the lending/real estate market evolves and reacts to the toxic waste loans that were made the last few years.
July 16, 2007 at 2:11 PM in reply to: How much will tougher Freddie & Fannie underwriting standards affect prices? #66090ParticipantIs it just me or is the linked “article” somewhat rambling and incoherent?
As far as what happened, yes Fannie & Freddie have offically stated that they will follow the Interagency Guidance on Nontraditional Mortgage Product Risk prescription. And it is mostly that – a general prescription. The only real bright-line requirement is that borrowers utilizing “non-traditional” mortgages (aka products where either principal or interest are deferred) must be qualified at the fully indexed rate with a fully amortizing payoff.
The result is intended to be the avoidence of unaffordable exploding ARMS. The initial tertiary result is credit contraction in the sense that the borrower can’t qualify for as much $$ in the fully-indexed fully amortizing scenario.
Of course, the guidance has no specific requirements for critical aspects such as debt-to-income ratios and stated income – leaving loopholes large enough to drive a truck through.
Nevertheless, I think we are and will continue to see credit contraction as the lending/real estate market evolves and reacts to the toxic waste loans that were made the last few years.
ParticipantPC – I know the article is from ’05 – that’s why I posted it for you – thought you would get a chuckle out of it.
I expect the downtown SD condo market, bad as it may get, to pale in comparison to what is likely to happen in Miami. Things look very bad there.
ParticipantPC – I know the article is from ’05 – that’s why I posted it for you – thought you would get a chuckle out of it.
I expect the downtown SD condo market, bad as it may get, to pale in comparison to what is likely to happen in Miami. Things look very bad there.
ParticipantPC – this one’s for you – enjoy:
http://www.signonsandiego.com/uniontrib/20050417/news_1b17specula.html
ParticipantPC – this one’s for you – enjoy:
http://www.signonsandiego.com/uniontrib/20050417/news_1b17specula.html
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