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December 28, 2008 at 6:28 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #320787December 28, 2008 at 6:28 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321134
TheBreeze
Participant[quote=davelj]
My friends use things called “spreadsheets” and make simplifying (bearish) assumptions about the characteristics of the different portions of the pools. It’s not feel, but rather math. But, more specifically, you do have to make assumptions. That’s necessary for modeling purposes. And those (loss) assumptions will be based on default, foreclosure, and recovery assumptions. But if you define every assumption in the financial world as a “feeling” – which is fine – and therefore not to be used or trusted (which is the implication of your post), then I assume all of your money is in your mattress at home. Because assumptions (“feelings” in your parlance) are how assets get valued. By all means, feel free to do your own analysis on this pool. Yes, there are people doing this. (Wasn’t that obvious from my post?) Yes, it’s worth doing (again… not obvious from my post?). Well at least to some folks apparently.[/quote]How do they get the recovery assumptions? Are they actually evaluating the individual properties in each pool or are they doing something else? Do you agree that using some type of rent multiplier is a good way to value a property?
Did I understand your original post correctly, in that there are the potential for 25% annual returns? And the reason banks can’t buy this stuff and get those 25% returns is because if the marks keep going down then they will have to engage in some kind of fire sale? Interesting. So are you investing with your own private capital then?
Since you think mark-to-market is a bad idea, do you think the creation of a US Prime Mortgage Security Index as described by Mr. Mortgage in this post is a bad idea?
Everyone says ‘the market is dysfunctional and irrational’ when referring to performing/non-performing whole loans and mortgage backed bonds. This is absolutely not the truth. The market is fully functional at the right price.
At the right price, there are plenty of funds who will buy hundreds of millions of loans and MBS’s and do the right thing with them. I personally know of many. Vultures do not kill things, they clean up the mess. We should be relying on the distressed players more in the clean-up of the mortgage mess.
…
This story and my input above is also exactly why ‘market participants’ have somehow forced Markit to pull the release of their new US Prime Mortgage Security Index. Markit are the creators of the well-known ABX index that did such a great job shedding light on what was really happening in the Subprime market. For a year, the pundits made Markit out to be a chop shop but in the end they were correct as were most waiving flags two years ago.
By the way, I’m not trying to be a smartass here, I’m just trying to reconcile your view with Mr. Mortgages, as both of you seem to be knowledgeable in this area.
December 28, 2008 at 6:28 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321188Participant[quote=davelj]
My friends use things called “spreadsheets” and make simplifying (bearish) assumptions about the characteristics of the different portions of the pools. It’s not feel, but rather math. But, more specifically, you do have to make assumptions. That’s necessary for modeling purposes. And those (loss) assumptions will be based on default, foreclosure, and recovery assumptions. But if you define every assumption in the financial world as a “feeling” – which is fine – and therefore not to be used or trusted (which is the implication of your post), then I assume all of your money is in your mattress at home. Because assumptions (“feelings” in your parlance) are how assets get valued. By all means, feel free to do your own analysis on this pool. Yes, there are people doing this. (Wasn’t that obvious from my post?) Yes, it’s worth doing (again… not obvious from my post?). Well at least to some folks apparently.[/quote]How do they get the recovery assumptions? Are they actually evaluating the individual properties in each pool or are they doing something else? Do you agree that using some type of rent multiplier is a good way to value a property?
Did I understand your original post correctly, in that there are the potential for 25% annual returns? And the reason banks can’t buy this stuff and get those 25% returns is because if the marks keep going down then they will have to engage in some kind of fire sale? Interesting. So are you investing with your own private capital then?
Since you think mark-to-market is a bad idea, do you think the creation of a US Prime Mortgage Security Index as described by Mr. Mortgage in this post is a bad idea?
Everyone says ‘the market is dysfunctional and irrational’ when referring to performing/non-performing whole loans and mortgage backed bonds. This is absolutely not the truth. The market is fully functional at the right price.
At the right price, there are plenty of funds who will buy hundreds of millions of loans and MBS’s and do the right thing with them. I personally know of many. Vultures do not kill things, they clean up the mess. We should be relying on the distressed players more in the clean-up of the mortgage mess.
…
This story and my input above is also exactly why ‘market participants’ have somehow forced Markit to pull the release of their new US Prime Mortgage Security Index. Markit are the creators of the well-known ABX index that did such a great job shedding light on what was really happening in the Subprime market. For a year, the pundits made Markit out to be a chop shop but in the end they were correct as were most waiving flags two years ago.
By the way, I’m not trying to be a smartass here, I’m just trying to reconcile your view with Mr. Mortgages, as both of you seem to be knowledgeable in this area.
December 28, 2008 at 6:28 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321206Participant[quote=davelj]
My friends use things called “spreadsheets” and make simplifying (bearish) assumptions about the characteristics of the different portions of the pools. It’s not feel, but rather math. But, more specifically, you do have to make assumptions. That’s necessary for modeling purposes. And those (loss) assumptions will be based on default, foreclosure, and recovery assumptions. But if you define every assumption in the financial world as a “feeling” – which is fine – and therefore not to be used or trusted (which is the implication of your post), then I assume all of your money is in your mattress at home. Because assumptions (“feelings” in your parlance) are how assets get valued. By all means, feel free to do your own analysis on this pool. Yes, there are people doing this. (Wasn’t that obvious from my post?) Yes, it’s worth doing (again… not obvious from my post?). Well at least to some folks apparently.[/quote]How do they get the recovery assumptions? Are they actually evaluating the individual properties in each pool or are they doing something else? Do you agree that using some type of rent multiplier is a good way to value a property?
Did I understand your original post correctly, in that there are the potential for 25% annual returns? And the reason banks can’t buy this stuff and get those 25% returns is because if the marks keep going down then they will have to engage in some kind of fire sale? Interesting. So are you investing with your own private capital then?
Since you think mark-to-market is a bad idea, do you think the creation of a US Prime Mortgage Security Index as described by Mr. Mortgage in this post is a bad idea?
Everyone says ‘the market is dysfunctional and irrational’ when referring to performing/non-performing whole loans and mortgage backed bonds. This is absolutely not the truth. The market is fully functional at the right price.
At the right price, there are plenty of funds who will buy hundreds of millions of loans and MBS’s and do the right thing with them. I personally know of many. Vultures do not kill things, they clean up the mess. We should be relying on the distressed players more in the clean-up of the mortgage mess.
…
This story and my input above is also exactly why ‘market participants’ have somehow forced Markit to pull the release of their new US Prime Mortgage Security Index. Markit are the creators of the well-known ABX index that did such a great job shedding light on what was really happening in the Subprime market. For a year, the pundits made Markit out to be a chop shop but in the end they were correct as were most waiving flags two years ago.
By the way, I’m not trying to be a smartass here, I’m just trying to reconcile your view with Mr. Mortgages, as both of you seem to be knowledgeable in this area.
December 28, 2008 at 6:28 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321286Participant[quote=davelj]
My friends use things called “spreadsheets” and make simplifying (bearish) assumptions about the characteristics of the different portions of the pools. It’s not feel, but rather math. But, more specifically, you do have to make assumptions. That’s necessary for modeling purposes. And those (loss) assumptions will be based on default, foreclosure, and recovery assumptions. But if you define every assumption in the financial world as a “feeling” – which is fine – and therefore not to be used or trusted (which is the implication of your post), then I assume all of your money is in your mattress at home. Because assumptions (“feelings” in your parlance) are how assets get valued. By all means, feel free to do your own analysis on this pool. Yes, there are people doing this. (Wasn’t that obvious from my post?) Yes, it’s worth doing (again… not obvious from my post?). Well at least to some folks apparently.[/quote]How do they get the recovery assumptions? Are they actually evaluating the individual properties in each pool or are they doing something else? Do you agree that using some type of rent multiplier is a good way to value a property?
Did I understand your original post correctly, in that there are the potential for 25% annual returns? And the reason banks can’t buy this stuff and get those 25% returns is because if the marks keep going down then they will have to engage in some kind of fire sale? Interesting. So are you investing with your own private capital then?
Since you think mark-to-market is a bad idea, do you think the creation of a US Prime Mortgage Security Index as described by Mr. Mortgage in this post is a bad idea?
Everyone says ‘the market is dysfunctional and irrational’ when referring to performing/non-performing whole loans and mortgage backed bonds. This is absolutely not the truth. The market is fully functional at the right price.
At the right price, there are plenty of funds who will buy hundreds of millions of loans and MBS’s and do the right thing with them. I personally know of many. Vultures do not kill things, they clean up the mess. We should be relying on the distressed players more in the clean-up of the mortgage mess.
…
This story and my input above is also exactly why ‘market participants’ have somehow forced Markit to pull the release of their new US Prime Mortgage Security Index. Markit are the creators of the well-known ABX index that did such a great job shedding light on what was really happening in the Subprime market. For a year, the pundits made Markit out to be a chop shop but in the end they were correct as were most waiving flags two years ago.
By the way, I’m not trying to be a smartass here, I’m just trying to reconcile your view with Mr. Mortgages, as both of you seem to be knowledgeable in this area.
December 28, 2008 at 5:19 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #320762Participant[quote=davelj]
CWABS Asset-Backed Certificates Trust 2007-7 is comprised of almost 5,000 subprime mortgages with aggregate principal of just over $1 billion. There are two pools, both conforming and non-conforming, and 64% of the Trust is comprised of 1st liens, with the remainder second liens. There are 16 tranches, or certificates, the top 6 of which are rated AAA. In this particular deal, if the subordinated tranches are wiped out, principal payments are apportioned to the senior-most tranches until they are paid down completely. The current quote on the AAA certificates is 56. Three months ago the quotes were in the 80s. The expected yield is about 23% with an expected weighted life of 2.5 years. Now, here’s the critical part: Holders of the AAA certs will achieve this yield if 83% of the Trust’s remaining principal balances are liquidated at 71% loss severity. If the loss severity goes to 85%, the yield drops to the low double digits on the AAAs – not too bad. Now, I’ve omitted a lot of info for brevity, but you can delve into some of these securities yourself here: http://consusgroup.com/v2/landing_pages/companies_sub/C14.asp.[/quote]
Where did you get those loss severity numbers? Since your whole thesis that this TLA is undervalued rests on those numbers surely you have some basis upon which to believe the loss severity is going to be 71% versus 98%? You’ve used math, but as far as I can tell, you’re using “feel” to get the loss severity numbers. I thought we weren’t supposed to do that.
You’ve done a top-down analysis. What I would like to see is someone identify each of those 5,000 properties and then value each of those properties based on some type of equivalent-rent multiplier. Once that is done, you could get a value for the entire pool (minus some percentage for foreclosure costs and what not). Are there people doing this? If not, why not? If there is truly the potential for 25% returns, surely the work involved in dong something like this would be worthwhile, wouldn’t it?
December 28, 2008 at 5:19 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321109Participant[quote=davelj]
CWABS Asset-Backed Certificates Trust 2007-7 is comprised of almost 5,000 subprime mortgages with aggregate principal of just over $1 billion. There are two pools, both conforming and non-conforming, and 64% of the Trust is comprised of 1st liens, with the remainder second liens. There are 16 tranches, or certificates, the top 6 of which are rated AAA. In this particular deal, if the subordinated tranches are wiped out, principal payments are apportioned to the senior-most tranches until they are paid down completely. The current quote on the AAA certificates is 56. Three months ago the quotes were in the 80s. The expected yield is about 23% with an expected weighted life of 2.5 years. Now, here’s the critical part: Holders of the AAA certs will achieve this yield if 83% of the Trust’s remaining principal balances are liquidated at 71% loss severity. If the loss severity goes to 85%, the yield drops to the low double digits on the AAAs – not too bad. Now, I’ve omitted a lot of info for brevity, but you can delve into some of these securities yourself here: http://consusgroup.com/v2/landing_pages/companies_sub/C14.asp.[/quote]
Where did you get those loss severity numbers? Since your whole thesis that this TLA is undervalued rests on those numbers surely you have some basis upon which to believe the loss severity is going to be 71% versus 98%? You’ve used math, but as far as I can tell, you’re using “feel” to get the loss severity numbers. I thought we weren’t supposed to do that.
You’ve done a top-down analysis. What I would like to see is someone identify each of those 5,000 properties and then value each of those properties based on some type of equivalent-rent multiplier. Once that is done, you could get a value for the entire pool (minus some percentage for foreclosure costs and what not). Are there people doing this? If not, why not? If there is truly the potential for 25% returns, surely the work involved in dong something like this would be worthwhile, wouldn’t it?
December 28, 2008 at 5:19 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321163Participant[quote=davelj]
CWABS Asset-Backed Certificates Trust 2007-7 is comprised of almost 5,000 subprime mortgages with aggregate principal of just over $1 billion. There are two pools, both conforming and non-conforming, and 64% of the Trust is comprised of 1st liens, with the remainder second liens. There are 16 tranches, or certificates, the top 6 of which are rated AAA. In this particular deal, if the subordinated tranches are wiped out, principal payments are apportioned to the senior-most tranches until they are paid down completely. The current quote on the AAA certificates is 56. Three months ago the quotes were in the 80s. The expected yield is about 23% with an expected weighted life of 2.5 years. Now, here’s the critical part: Holders of the AAA certs will achieve this yield if 83% of the Trust’s remaining principal balances are liquidated at 71% loss severity. If the loss severity goes to 85%, the yield drops to the low double digits on the AAAs – not too bad. Now, I’ve omitted a lot of info for brevity, but you can delve into some of these securities yourself here: http://consusgroup.com/v2/landing_pages/companies_sub/C14.asp.[/quote]
Where did you get those loss severity numbers? Since your whole thesis that this TLA is undervalued rests on those numbers surely you have some basis upon which to believe the loss severity is going to be 71% versus 98%? You’ve used math, but as far as I can tell, you’re using “feel” to get the loss severity numbers. I thought we weren’t supposed to do that.
You’ve done a top-down analysis. What I would like to see is someone identify each of those 5,000 properties and then value each of those properties based on some type of equivalent-rent multiplier. Once that is done, you could get a value for the entire pool (minus some percentage for foreclosure costs and what not). Are there people doing this? If not, why not? If there is truly the potential for 25% returns, surely the work involved in dong something like this would be worthwhile, wouldn’t it?
December 28, 2008 at 5:19 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321182Participant[quote=davelj]
CWABS Asset-Backed Certificates Trust 2007-7 is comprised of almost 5,000 subprime mortgages with aggregate principal of just over $1 billion. There are two pools, both conforming and non-conforming, and 64% of the Trust is comprised of 1st liens, with the remainder second liens. There are 16 tranches, or certificates, the top 6 of which are rated AAA. In this particular deal, if the subordinated tranches are wiped out, principal payments are apportioned to the senior-most tranches until they are paid down completely. The current quote on the AAA certificates is 56. Three months ago the quotes were in the 80s. The expected yield is about 23% with an expected weighted life of 2.5 years. Now, here’s the critical part: Holders of the AAA certs will achieve this yield if 83% of the Trust’s remaining principal balances are liquidated at 71% loss severity. If the loss severity goes to 85%, the yield drops to the low double digits on the AAAs – not too bad. Now, I’ve omitted a lot of info for brevity, but you can delve into some of these securities yourself here: http://consusgroup.com/v2/landing_pages/companies_sub/C14.asp.[/quote]
Where did you get those loss severity numbers? Since your whole thesis that this TLA is undervalued rests on those numbers surely you have some basis upon which to believe the loss severity is going to be 71% versus 98%? You’ve used math, but as far as I can tell, you’re using “feel” to get the loss severity numbers. I thought we weren’t supposed to do that.
You’ve done a top-down analysis. What I would like to see is someone identify each of those 5,000 properties and then value each of those properties based on some type of equivalent-rent multiplier. Once that is done, you could get a value for the entire pool (minus some percentage for foreclosure costs and what not). Are there people doing this? If not, why not? If there is truly the potential for 25% returns, surely the work involved in dong something like this would be worthwhile, wouldn’t it?
December 28, 2008 at 5:19 PM in reply to: On Price, Intrinsic Value, MBS, and Mark-to-Market #321261Participant[quote=davelj]
CWABS Asset-Backed Certificates Trust 2007-7 is comprised of almost 5,000 subprime mortgages with aggregate principal of just over $1 billion. There are two pools, both conforming and non-conforming, and 64% of the Trust is comprised of 1st liens, with the remainder second liens. There are 16 tranches, or certificates, the top 6 of which are rated AAA. In this particular deal, if the subordinated tranches are wiped out, principal payments are apportioned to the senior-most tranches until they are paid down completely. The current quote on the AAA certificates is 56. Three months ago the quotes were in the 80s. The expected yield is about 23% with an expected weighted life of 2.5 years. Now, here’s the critical part: Holders of the AAA certs will achieve this yield if 83% of the Trust’s remaining principal balances are liquidated at 71% loss severity. If the loss severity goes to 85%, the yield drops to the low double digits on the AAAs – not too bad. Now, I’ve omitted a lot of info for brevity, but you can delve into some of these securities yourself here: http://consusgroup.com/v2/landing_pages/companies_sub/C14.asp.[/quote]
Where did you get those loss severity numbers? Since your whole thesis that this TLA is undervalued rests on those numbers surely you have some basis upon which to believe the loss severity is going to be 71% versus 98%? You’ve used math, but as far as I can tell, you’re using “feel” to get the loss severity numbers. I thought we weren’t supposed to do that.
You’ve done a top-down analysis. What I would like to see is someone identify each of those 5,000 properties and then value each of those properties based on some type of equivalent-rent multiplier. Once that is done, you could get a value for the entire pool (minus some percentage for foreclosure costs and what not). Are there people doing this? If not, why not? If there is truly the potential for 25% returns, surely the work involved in dong something like this would be worthwhile, wouldn’t it?
December 27, 2008 at 7:06 AM in reply to: Some math on how we’re going to get out of this mess #320393ParticipantDec. 24th, 2008:
Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.
Sep. 2, 2008:
“Though recent declines in the 12-month Treasury average rates have mitigated some risks, the majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/
sdrealtor,
Stop being retarded. Loan portfolios are rated periodically, so it would be easy for a rating agency like Fitch to track the percentage of OptionARMers who are paying the minimum.
December 27, 2008 at 7:06 AM in reply to: Some math on how we’re going to get out of this mess #320739ParticipantDec. 24th, 2008:
Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.
Sep. 2, 2008:
“Though recent declines in the 12-month Treasury average rates have mitigated some risks, the majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/
sdrealtor,
Stop being retarded. Loan portfolios are rated periodically, so it would be easy for a rating agency like Fitch to track the percentage of OptionARMers who are paying the minimum.
December 27, 2008 at 7:06 AM in reply to: Some math on how we’re going to get out of this mess #320793ParticipantDec. 24th, 2008:
Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.
Sep. 2, 2008:
“Though recent declines in the 12-month Treasury average rates have mitigated some risks, the majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/
sdrealtor,
Stop being retarded. Loan portfolios are rated periodically, so it would be easy for a rating agency like Fitch to track the percentage of OptionARMers who are paying the minimum.
December 27, 2008 at 7:06 AM in reply to: Some math on how we’re going to get out of this mess #320810ParticipantDec. 24th, 2008:
Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.
Sep. 2, 2008:
“Though recent declines in the 12-month Treasury average rates have mitigated some risks, the majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/
sdrealtor,
Stop being retarded. Loan portfolios are rated periodically, so it would be easy for a rating agency like Fitch to track the percentage of OptionARMers who are paying the minimum.
December 27, 2008 at 7:06 AM in reply to: Some math on how we’re going to get out of this mess #320892ParticipantDec. 24th, 2008:
Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.
Sep. 2, 2008:
“Though recent declines in the 12-month Treasury average rates have mitigated some risks, the majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/
sdrealtor,
Stop being retarded. Loan portfolios are rated periodically, so it would be easy for a rating agency like Fitch to track the percentage of OptionARMers who are paying the minimum.
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