whos holding the mortgage loans?

Discussion in 'Economics' started by empee, Mar 31, 2007.

  1. empee


    So, the question isn't IF its who, who's holding the paper? I've read that it was packaged and sold off (MBS), etc but at some point we should start seeing where the ppl who are holding these loans are @.

    With the clearly mispricing of risk in the mortgage industry (hungry for volume and fees, like everything else) it has to explode somewhere.

    Now I understand there are firms like New Century, where they do the dirty work and sell to the bigger banks like MS or GSCO, who than can "put" back the loans to New Century, and then New Century can go bankrupt keeping the big bankers clean.. but with the serious amount of $$ involved, its got to hit someone balance sheet much harder than it has (or it is).

    The question is, WHERE are the loans ending up/who's holding the paper. No one seems to know.. yet.

    I am mentioning the majority of the paper, not just slivers of it. I dont think the end-banks were holding it since they would sell it off to get fresh capital and do it again, I think its somewhere else. Everyone is saying "hedge funds" but thats rather obtuse. (everyone == media)
  2. Well Empee, I'm glad you brought this up cause I'd like to know too! I hope someone answers.

    "The question is, WHERE are the loans ending up/who's holding the paper. No one seems to know.. yet."

    Off the top of my head I'd guess the Chinese are holding the paper and don't know it.
  3. Thought I'd toss this in for your viewing leisure.

    A commenter at CalculatedRisk forwarded a list that answers that question. It was originally posted on capitalstool.com.

    [1] NEW originated mortgages
    [2] NEW borrows money from Wall Street via warehouse financing
    [3] NEW provides borrower with cash and receives note payable (the mortgage)
    [4] NEW bundles up mortgages and ships them back to Wall Street less processing fee and covers its original borrowing
    [5] Wall Street packages and then slices and dices and sells derivative securities (collateralized by the mortgages) to pension funds, insurance companies , money market funds, foreign investors, etc.
    [6] Home owners begin to default on these mortgages thus effecting the mark-to-market value of the derivative securities
    [7] Pension funds, insurance companies , money market funds, foreign investors, etc. go to Wall Street and demand that they take back these securities
    [8] Wall Street goes back to NEW and asks them to buy back the original mortgages
    [9] NEW ain't got no money -- they never did -- it was Wall Street's money

    cont. on link..

  4. Morgan is holding a lot of that prime paper.
  5. blast19


    I've been laying awake at night trying to figure that out too. No one seems to want to fess up.

    I don't think it's the subprime stuff you need to worry about as much as the Alt-A stuff altogether. My guess is a lot of banks are holding it. These are in the forms of MBSs and CDOs right...so who knows where they are as they could be on balance sheets along with other CDOs and packaged securities.

    I'd look at banks/lenders:

    - HRB should have a ton
    - WamU has loads I'm sure
    - CFC - They show $144B in assets on their balance sheet. I'm sure it's almost all loans.
    - Bofa - Maybe
    - Morgan Stanley likely has a lot
    - The chinese probably have a ton of it.
    - Pension funds(This is a big one that worries me!)
    - Hedge funds(They were getting some great returns on those CDOs!)
    - and stock_trad3r is rumored to hold about $10 trillion in MBSs...but you'll have to ask him. :D

    So far I've been shorting(only buy Puts actually)lending companies with a high amount of assets on their balance sheet. I see write-downs galore coming.

    Also, builders who have high inventory are a great set to short...they can always probably liquidate, but no one wants to buy anything now. This article is a good place to check into the difficulty some of these companies are already having selling off the loans:


    I expect construction companies to have bigger problems due to the fact that old houses, even if they're "new," depreciate quickly probably. Who pays full price for a brand new 2005 Acura in 2007? Not me sir!

    And if you haven't read it, this is an incredibly interesting article regarding how the dominos could potentially fall. If the first article is any indication, we're in for some hurt:


    It will be interesting to see companies fessing up to things. I think there's a lot that will be coming out. As for now, not many seem to be coming out and announcing their exposure.
  6. From your link.

    "Yesterday, Bear Stearns Cos., the biggest U.S. underwriter of mortgage-backed bonds, said the surge of defaults in subprime home loans won't spread to other parts of the mortgage market."

    Pretty bold statement. My first hhmmmm thoughts lead me to wonder about the Shanghia composite and its recent sell off, for all we know the risk could be out of the system on the back of the moo goo gai pan investor.
  7. Adobian


    That's what they've been trying to say all along ... no bubble, no crash, buyer's market won't last long, etc. They have to. Just like the stock market ... bear market won't last long etc.

    Otherwise, there would be no buyers.
  8. If you looked back historically and say, the housing bottom lasted years. What if, the velocity of money caused the housing market to create a deep V in the chart. The speed of news, liquidity, other factors erase or make null and void the flat line of previous bottoms.

    The mindset of these first retiring baby boomers is appaling, remember this is the "me" generation and they are everywhere most annoyingly in Congress. They be protecting theys asses, we may get some benes from the fallout.
  9. So you blame the boomer's for the RE crash? No, No. While I do not whitewash them a bit, let's face it if the X generation was not so eager to learn the selfishness and the narrow minded money grabbing, dumb fuck mindset they would have these ignorant, dropouts trying to buy homes with low FICA and no income OR dreaming of becoming rich RE investors (after staying up for a late night infomercial).
    Only the dumbest of the dumb will sign some of those mortgages these people were duped into signing. While it is sad and immoral for the lenders, it always takes two to tango.
    "If it were not for sheer dumb luck the fool and his money would have never met the first time"
  10. from what MTB said, it's the banks lol.

    They tried selling their Alt-A loans but kept em because the bids where too low. Oh and they took a charge for bad loans to boot.

    I think Buffett owns like 12% of MTB.

    Who's the next bank to confess??:cool:
    #10     Apr 2, 2007