THE WORSE IT GETS THE MORE THEY MAKE $$$

Feb 17, 2011

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

It may take many years but eventually everyone will realize how pernicious this securitization scheme became — like the worm used to destroy Iranian equipment or the viruses that are spread as mal-ware throughout our computer system. Only yesterday did it dawn on anti-terrorism experts that Mubarak had done the impossible when he was resisting his ouster: he hit the off switch for Egypt alone. That means it could be done anywhere.

The principle is simple — why work hard to make a profit when you can make a fortune creating a loss? It is so antithetical to the American dream of working upward to achieve and to aspire to greater things that our collective minds cannot accept the fact that Wall Street simply took the money and walked away with it, came back for some more and walked away with that, now they are back taking houses too, and they are even creating new profit opportunities for themselves while they continue to cheat and lie to investors around the world.

On this blog I have shown how the worse the mortgage quality, the higher the profit earned by Wall Street and securitizers and pretender lenders. I have shown how the even the highest tranche was torpedoed by the sale of credit default swaps on the lowest tranche. The game was on and the worse things got for investors the more Wall Street made. The article below gives the impression that there is actually a return to be expected from these toxic assets. The fact is that they are toxic because they are worse than worthless. The receivable may not exist, the security was eviscerated long ago, and the investors are again going to be paid out of their own money just long enough to create the impression of a deal that didn’t work out.

Everyone who is still thinking about the homeowner as getting windfall of a free home should examine the facts. How is it free after all this? Who really is getting the free home — the parties foreclosing who never lent a dime on the home, screwed the investors and never purchased, transferred or endorsed the loan because the original deal was fatally defective.

Give me the MOST skeptical far right ideologue and let me show him or her the facts and then let’s see what their view is of who is getting screwed and who is getting a windfall. Stop listening to the spin on cable news. They don’t know what they are talking about. And please, don’t tell me you don’t trust government then use government figures to argue against me — you can’t have it both ways.

‘Toxic’ US mortgage securities boost bank and hedge fund profits

Elena Moya and Radi Khasawneh

14 Feb 2011

Investment banks and hedge funds are once again making money from a sector that was defunct only 18 months ago: US mortgage-backed securities, the loan products that spread the credit crunch throughout the world.

Only two years later, and despite the fact that many US cities are on the edge of bankruptcy, these securities have turned into one of the most lucrative profit areas for banks that specialise in fixed income trading, such as Credit Suisse.

The Swiss lender said last week that its investment banking sales and trading income had benefited from a strong US residential mortgage-backed securities market. The bank earns fees from buying and selling the assets on behalf of clients, including hedge funds, which have flocked to the $11 trillion US mortgage market.

“In large part, the buoyancy comes from government support for the US mortgage market, both for agency securities backed by the government and also for deals which don’t have direct government backing,” said Deepak Narula, a former Lehman Brothers mortgage-bond trader, who now runs New York-based hedge fund Metacapital Management. “The successful attempts by the central bank to bring down mortgage rates, along with many other programmes aimed at reviving housing have also helped.”

Some US mortgage loan prices have almost doubled since 2008, when they plunged following the collapse of Lehman Brothers and credit markets came to a halt. Hedge funds investing in global mortgage products have gained 22% in 2010, according to the HFN mortgages index.

RMBS hedge funds are among the best-performing in the world over the past 12 months. Metacapital and SPM Structured Servicing Holdings have both gained 51% over the past 12 months, while Nisswa Fixed Income Fund and SPM Opportunity fund have risen by 34% over the same period, according to data compiled by HFMWeek. Those gains are substantially above the 10% average returns offered by the hedge fund industry in 2010 or the 17% gained by the FTSE100 Index over the past 12 months.

Investors are after the strong yields of between 6% and 8% offered by the securities – much higher than other credit investments such as the 2.3% yield offered by the benchmark five-year US Treasury bonds.
Price gains have also delivered profits, as the “2008 pricing in scenarios were far more pessimistic than what has unfolded subsequently – mainly because of the government support”, Narula said.

However, the role of the US government in the mortgage industry may be revamped soon. Last week the administration of President Barack Obama unveiled proposals to restructure the market, which may include the shrinking of the present government-backed mortgage agencies Fannie Mae and Freddie Mac. Narula said: “Uncertainty over the future of the agencies creates opportunity – depending on the final outcome, there may be a substantial repricing of mortgages: the over $5 trillion of existing agency-backed bonds may increase in value as new, non-guaranteed bonds are issued in the future.”

The changes under consideration could result in higher guarantee fees, more stringent credit guidelines and lower loan limits. This may result in higher mortgage rates, translating into higher refinancing costs to the homeowner, and therefore, causing the value of existing securities to appreciate.

“This will be the focal point of debate for the evolution of the housing market in the US. It is a multi-year solution that will begin to be felt in the markets immediately, but its full impact will resonate for many years,” said Paul Heyrman, ABS product specialist at CQS, a $10bn multi-strategy asset manager that manages a $1.2bn ABS fund.

In Europe, the RMBS market has slowly started to pick up. The steady performance of spreads and primary issuance volumes has pushed investors into the lower-rated bonds, called mezzanine tranches, in the secondary market. Trading in those securities pushes up margins for banks as investors look to markets that have been oversold since the financial crisis.

Heyrman said: “What we have seen in both Europe and the US is an acceleration of a trend towards putting money to work in the ABS market. Limited new issue supply and a fundamental reassessment of relative value across credit have driven some pretty significant price appreciation and spread tightening in response to secondary market demand.”

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