A logical answer from one of the forum's master blasters. In other words, why wrap your resources up when they can be used better elsewhere? A significant number of people are still stuck in this mindset of slow and steady, which is fine, but it's all how you can manage the financial resources to your advantage. It's only people such as Shadow who have the clarity to see this, even though it's conceptually very simple.
Thanks Cat. So am I no longer a Mouzealot, or do I retain that title along with 'Master Blaster'.
issuer unless not transferred back (i.e. issuer in serious bother).
What's the fucking point in securitising it in the first place then?
And what risk is the bondholder taking if non-performing loans are sent back to the originator?
Emmanuel
31 Oct 2014, 01:13 PM
A logical answer from one of the forum's master blasters. In other words, why wrap your resources up when they can be used better elsewhere? A significant number of people are still stuck in this mindset of slow and steady, which is fine, but it's all how you can manage the financial resources to your advantage. It's only people such as Shadow who have the clarity to see this, even though it's conceptually very simple.
Is your role on this forum to give the bulls regular handjobs?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
What's the fucking point in securitising it in the first place then?
And what risk is the bondholder taking if non-performing loans are sent back to the originator?
It's a loan secured by mortgages over property. You take credit risk on the issuer and if they fail and you have to step in you have a bunch of mortgages to collect on or sell. Pretty simple financing when it boils down.
People don't use IO loans because they can't afford to repay any principal. They use them because there are other (more financially beneficial) uses for the money that would otherwise have been used to repay principal - for example paying down a different loan, or investing the money elsewhere, or even just putting it in offset/redraw so they can more easily access it later if necessary.
Well actually, they do.
Why is it so implausible that someone would opt to go IO just to get on the ladder?
Because the banks won't lend you more just because you go IO instead of P&I - go try it. In fact the opposite is often the case.
Re your other question about why did securitisation dry up in 2008 - do you not remember the GFC? Basically all global RMBS type products were tainted by the US sub-prime loan scandal and associated toxic assets (CDOs etc, which packaged up RMBS with credit default swaps and so on). When the liquidity crisis hit, the cash markets ground to a near-halt, and markets for RBMS complety froze - zero liquidity - no-one would buy anything, especially not overseas investors / institutions - even though the AU products were still low risk and represented well selected, lo LVR, quality loans. But at that time, nothing mattered, fear ruled.
Then, the small banks/lenders, who relied entirely on the RBMS market, all became insolvent almost overnight - they were all bought out for next to nothng by the big 4 banks, who then took over there branding and sales channels, but no longer needed to securitise the loans. For a good couple of years there was virtually no securitisation going on Australia as a result.
The market has been slowly recovering since then, but it's nowhere near its former self. The AOFM even tries to help it along remember?
For Aussie property bears, "denial", is not just a long river in North Africa.....
What's the fucking point in securitising it in the first place then?
And what risk is the bondholder taking if non-performing loans are sent back to the originator? Is your role on this forum to give the bulls regular handjobs?
Are the sexual barbs necessary?
Sydneyite
31 Oct 2014, 01:22 PM
Because the banks won't lend you more just because you go IO instead of P&I - go try it. In fact the opposite is often the case.
Re your other question about why did securitisation dry up in 2008 - do you not remember the GFC? Basically all global RMBS type products were tainted by the US sub-prime loan scandal and associated toxic assets (CDOs etc, which packaged up RMBS with credit default swaps and so on). When the liquidity crisis hit, the cash markets ground to a near-halt, and markets for RBMS complety froze - zero liquidity - no-one would buy anything, especially not overseas investors / institutions - even though the AU products were still low risk and represented well selected, lo LVR, quality loans. But at that time, nothing mattered, fear ruled.
Then, the small banks/lenders, who relied entirely on the RBMS market, all became insolvent almost overnight - they were all bought out for next to nothng by the big 4 banks, who then took over there branding and sales channels, but no longer needed to securitise the loans. For a good couple of years there was virtually no securitisation going on Australia as a result.
The market has been slowly recovering since then, but it's nowhere near its former self. The AOFM even tries to help it along remember?
Good summary of events. Actually, in the case of Australia, I think our banking structure is in a much stronger position since the GFC, which is quite an achievement considering it was probably the #1 banking system in the world prior to 2008.
It's a loan secured by mortgages over property. You take credit risk on the issuer and if they fail and you have to step in you have a bunch of mortgages to collect on or sell. Pretty simple financing when it boils down.
Hang on.
Mortgage backed securities are sold by the SPV to investors.
If the mortgages underpinning the securities fall over, the investors take the hit.
This is how so many investors got taken to the cleaners during the GFC; they bought mortgage backed securities that were secured against subprime loans.
The originators did not take the hit.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Good summary of events. Actually, in the case of Australia, I think our banking structure is in a much stronger position since the GFC, which is quite an achievement considering it was probably the #1 banking system in the world prior to 2008.
You're slipping out of character. You could learn a thing or two from BearTrap about staying in character.
Mortgage backed securities are sold by the SPV to investors.
If the mortgages underpinning the securities fall over, the investors take the hit.
This is how so many investors got taken to the cleaners during the GFC; they bought mortgage backed securities that were secured against subprime loans.
The originators did not take the hit.
I'm talking about Australian securitisation and (separately) Australian covered bonds.
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