Financial question about mortgage backed securities - GoFuckYourself.com

Mutt · 09-02-2013, 05:36 PM

I don't want to re-hash the how and why of the housing/financial crisis in 2007 but there's something I've never understood about it. The collapse of the housing market happened when people defaulted on their sub-prime mortgages on homes they really couldn't afford, that set off a chain reaction on Wall Street because Wall Street had been busy selling these complicated/shady 'mortgage backed securities'. They had bought up these mortgages from the original lending banks.

So how come all these homes that were defaulted on ended up back in the hands of the banks when the banks no longer owned the mortgages on them? I must be missing something.

epitome · 09-02-2013, 05:52 PM

They are actually ending back up in the loan serving departments of banks. Most big banks added that service as it can be quite profitable. So they are really the trustee for the syndication investors.

Syndication was a way for banks to pretty much make unlimited loans. Banks can only lend what they have, minus reserves. So what they did was give the mortgage and then bundled it to sell off the investors, thereby giving them the cash to lend again.

Most banks continued to service the loan through their servicing subsidiary, acting as trustee.

There are a ton of fees to earn in loan servicing, especially if the house is foreclosed on. That is why banks were not interested in doing short sales until they were forced to. They'd earn a lot more in fees pushing it through foreclosure.

Banks, as they always seem to do, figured out how to make money on both sides.

If Wells Fargo gave you a mortgage and syndicated it, you would often still send your payments to Wells Fargo as servicer. They would then cut checks to the investors.

onwebcam · 09-02-2013, 05:53 PM

You have it a bit wrong. In reality what happened is there was a false bubble created which drove the prices up way beyond affordability/actual value. As far as who owns the mortgages. The loans were bundled up to a dollar amount say $100 million and they are then sold to someone higher up the lending chain. If all of the paperwork was in order (which in most cases it is not) then obviously those higher up the food chain hold position on the home which is considered an asset of theirs and the "homeowner" is more or less a sophisticated lease to owner. So when the owner defaults it defaults back to first position lein holder on the deed.

The mortgage is just a debt the buyer agreed to not neccesarily the value of the home nor is it how much the bank has into it. In fact banks only have to hold 10% reserves so when they lend you 100,000 then they are only out $10,000 but in most cases not even that since they require you to put somewhere around that down. As far as the paperwork is concerned this is why many banks/investors are getting sued and losing many cases because they don't have original notes and just copies of it since it has changed hands so many times.

Simply put whoever is first position lein holder on the deed is actual homeowner. It gets a bit more complicated than that but a quick explaination.

epitome · 09-02-2013, 05:58 PM

Quote:

Originally Posted by onwebcam

You have it a bit wrong. In reality what happened is there was a false bubble created which drove the prices up way beyond affordability/actual value. As far as who owns the mortgages. The loans were bundled up to a dollar amount say $100 million and they are then sold to someone higher up the lending chain. If all of the paperwork was in order (which in most cases it is not) then obviously those higher up the food chain hold position on the home which is considered an asset of theirs and the "homeowner" is more or less a sophisticated lease to owner. So when the owner defaults it defaults back to first position lein holder on the deed.

The mortgage is just a debt the buyer agreed to not neccesarily the value of the home nor is it how much the bank has into it. In fact banks only have to hold 10% reserves so when they lend you 100,000 then they are only out $10,000 but in most cases not even that since they require you to put somewhere around that down. As far as the paperwork is concerned this is why many banks/investors are getting sued and losing many cases because they don't have original notes and just copies of it since it has changed hands so many times.

It gets a bit more complicated than that but a quick explaination. Simply put whoever is first position lein holder ont he deed is actual homeowner.

No. This is what I did for years. Go back to posting "Harvard" studies.

onwebcam · 09-02-2013, 06:13 PM

Quote:

Originally Posted by epitome

No. This is what I did for years. Go back to posting "Harvard" studies.

Owned a mortgage brokerage at 25 and did so for many years myself. We also had a small line which we bundled in house. The reason I got out was because I saw what was coming and called it on another forum at least a year before it happened. BTW we are pretty much back to that point again. Next time won't be as pretty.

TheSquealer · 09-02-2013, 06:16 PM

Quote:

Originally Posted by epitome

No. This is what I did for years. Go back to posting "Harvard" studies.

We have been trying to figure something out and no one really has a good answer. Maybe you have an idea....

My GF is a broker and she has a contract with a very large institutional investor to buy up as many homes as possible in a very large city for almost a year. Basically the day they are listed, they run them through the formula and make a cash offer within hours. They all ended up being around 80-150k range and the whole point was this company was then leasing them out. So in one city alone, I know they bought over 1000 homes. Just managing 1-2-3-4 houses with tenants as you might know is a fucking nightmare, particularly when you are dealing with tenants in that price range (800-1200/mo). Maintenance costs are going to be huge. Late rent/evictions are going to be high etc. They are not buying any multi-family stuff at all.. which of course, has much better economics once you get past say 20-30 units.

They also make these houses available to Section 8 tenants which is in itself, completely retarded. Even more so on a huge scale. Anyone thats ever rented multiple units, knows this.

I could never determine if they were insanely stupid, naive or if there was some specific program, maybe in the stimulus bills that incentivized this. Maybe as part of a tax strategy for a multi-billion dollar mutual fund? The sheer numbers of homes purchased as you can guess, quickly righted the market and heated it up. Local news always reports how hot the housing market is hot etc... but they never report on the fact that 2 large companies are literally pumping 9/10 figures into the market, snatching up everything in this price range.

I dont see an exit strategy for them as they are buying properties in places that largely are not going to appreciate over time. (in many of the cities they are doing this) and ultimately they are all going to get trashed. I can't imagine how they will get out of them by selling bulk deals unless they plan to sell at a loss.

Do you have any clue why they would be doing that? Owning 10,000+ single family rental properties across multiple states makes no sense at all to me.

Its also really weird to watch. Entire neighborhoods are now 100% fucked. They literally bought every property that came on the market and turned them into rentals - even worse, renting them to Section 8 tenants... basically turned entire large neighborhoods from little old ladies who recently passed away to ghettos.

purecane · 09-02-2013, 06:32 PM

You both make very good points on the first discussion, I also have a mortgage brokerage background and the missing link in all of this , IMO, is the local appraisers allowing such a huge bubble in the first place. Palm coast Florida, just north of me, is a perfect example of this. I bought my first house for 73K in '98, house lot package. The empty lot next to mine sold for 64K just about two years later....my lot was offered at 5500$.
As far as your second question, remember when Obama talked about the "redistribution of wealth" ????? He was lying and what he really meant was, "we own the land here and everything on it".... Bailout my ass

onwebcam · 09-02-2013, 06:52 PM

Quote:

Originally Posted by purecane

You both make very good points on the first discussion, I also have a mortgage brokerage background and the missing link in all of this , IMO, is the local appraisers allowing such a huge bubble in the first place. Palm coast Florida, just north of me, is a perfect example of this. I bought my first house for 73K in '98, house lot package. The empty lot next to mine sold for 64K just about two years later....my lot was offered at 5500$.
As far as your second question, remember when Obama talked about the "redistribution of wealth" ????? He was lying and what he really meant was, "we own the land here and everything on it".... Bailout my ass

An appraiser uses comparable sales to reach their value and those can be easily manipulated. If someone overpays for a house because someone lined the walls with gold the next appraiser would use it as a comparable without mentioning or maybe even knowing about the gold.

Mutt · 09-02-2013, 07:15 PM

Quote:

Originally Posted by epitome

They are actually ending back up in the loan serving departments of banks. Most big banks added that service as it can be quite profitable. So they are really the trustee for the syndication investors.

Syndication was a way for banks to pretty much make unlimited loans. Banks can only lend what they have, minus reserves. So what they did was give the mortgage and then bundled it to sell off the investors, thereby giving them the cash to lend again.

Most banks continued to service the loan through their servicing subsidiary, acting as trustee.

There are a ton of fees to earn in loan servicing, especially if the house is foreclosed on. That is why banks were not interested in doing short sales until they were forced to. They'd earn a lot more in fees pushing it through foreclosure.

Banks, as they always seem to do, figured out how to make money on both sides.

If Wells Fargo gave you a mortgage and syndicated it, you would often still send your payments to Wells Fargo as servicer. They would then cut checks to the investors.

Good explanation - I knew that these huge Wall St investment houses wouldn't want to be nor could be in the business of servicing home mortgages.

So as these homes are sold off by banks are the proceeds going directly back to the US government who bailed out the Wall St firms?

onwebcam · 09-02-2013, 07:50 PM

Quote:

Originally Posted by Mutt

Good explanation - I knew that these huge Wall St investment houses wouldn't want to be nor could be in the business of servicing home mortgages.

So as these homes are sold off by banks are the proceeds going directly back to the US government who bailed out the Wall St firms?

The (private) Federal Reserve which is ultimately the lender of lenders is not the US government. When they say the Fed is buying up all that "bad debt" they are buying up all those mortgages and acquiring the property along with it.

slapass · 09-03-2013, 06:32 AM

Quote:

Originally Posted by TheSquealer

We have been trying to figure something out and no one really has a good answer. Maybe you have an idea....

My GF is a broker and she has a contract with a very large institutional investor to buy up as many homes as possible in a very large city for almost a year. Basically the day they are listed, they run them through the formula and make a cash offer within hours. They all ended up being around 80-150k range and the whole point was this company was then leasing them out. So in one city alone, I know they bought over 1000 homes. Just managing 1-2-3-4 houses with tenants as you might know is a fucking nightmare, particularly when you are dealing with tenants in that price range (800-1200/mo). Maintenance costs are going to be huge. Late rent/evictions are going to be high etc. They are not buying any multi-family stuff at all.. which of course, has much better economics once you get past say 20-30 units.

They also make these houses available to Section 8 tenants which is in itself, completely retarded. Even more so on a huge scale. Anyone thats ever rented multiple units, knows this.

I could never determine if they were insanely stupid, naive or if there was some specific program, maybe in the stimulus bills that incentivized this. Maybe as part of a tax strategy for a multi-billion dollar mutual fund? The sheer numbers of homes purchased as you can guess, quickly righted the market and heated it up. Local news always reports how hot the housing market is hot etc... but they never report on the fact that 2 large companies are literally pumping 9/10 figures into the market, snatching up everything in this price range.

I dont see an exit strategy for them as they are buying properties in places that largely are not going to appreciate over time. (in many of the cities they are doing this) and ultimately they are all going to get trashed. I can't imagine how they will get out of them by selling bulk deals unless they plan to sell at a loss.

Do you have any clue why they would be doing that? Owning 10,000+ single family rental properties across multiple states makes no sense at all to me.

Its also really weird to watch. Entire neighborhoods are now 100% fucked. They literally bought every property that came on the market and turned them into rentals - even worse, renting them to Section 8 tenants... basically turned entire large neighborhoods from little old ladies who recently passed away to ghettos.

I just sold a house to one of these deals. I agree that they are in over their head but it is the same deal. They bundle and sell off chucnks so they make money on the servicing of the rentals and commissions on the "investment". Welcome to Wall Street 2013.

purecane · 09-03-2013, 06:40 AM

Quote:

Originally Posted by onwebcam

An appraiser uses comparable sales to reach their value and those can be easily manipulated. If someone overpays for a house because someone lined the walls with gold the next appraiser would use it as a comparable without mentioning or maybe even knowing about the gold.

i understand that theory, however there should be some sort of control that keeps home and land values gaining at a sustainable pace. i have no problem with some realtor selling a 100k home for 200k, but when the appraiser gets that file a red flag should go up and that sale should not automatically increase every home in that neighborhood by that percentage.

09-02-2013, 05:36 PM	#1
Mutt Too lazy to set a custom title Industry Role: Join Date: Sep 2002 Posts: 34,431	Financial question about mortgage backed securities I don't want to re-hash the how and why of the housing/financial crisis in 2007 but there's something I've never understood about it. The collapse of the housing market happened when people defaulted on their sub-prime mortgages on homes they really couldn't afford, that set off a chain reaction on Wall Street because Wall Street had been busy selling these complicated/shady 'mortgage backed securities'. They had bought up these mortgages from the original lending banks. So how come all these homes that were defaulted on ended up back in the hands of the banks when the banks no longer owned the mortgages on them? I must be missing something. __________________ I moved my sites to Vacares Hosting. I've saved money, my hair is thicker, lost some weight too! Thanks Sly!

09-02-2013, 05:53 PM	#3
onwebcam Fake Nick 1.0 Industry Role: Join Date: Oct 2005 Location: Rent free, your head Posts: 27,675	You have it a bit wrong. In reality what happened is there was a false bubble created which drove the prices up way beyond affordability/actual value. As far as who owns the mortgages. The loans were bundled up to a dollar amount say $100 million and they are then sold to someone higher up the lending chain. If all of the paperwork was in order (which in most cases it is not) then obviously those higher up the food chain hold position on the home which is considered an asset of theirs and the "homeowner" is more or less a sophisticated lease to owner. So when the owner defaults it defaults back to first position lein holder on the deed. The mortgage is just a debt the buyer agreed to not neccesarily the value of the home nor is it how much the bank has into it. In fact banks only have to hold 10% reserves so when they lend you 100,000 then they are only out $10,000 but in most cases not even that since they require you to put somewhere around that down. As far as the paperwork is concerned this is why many banks/investors are getting sued and losing many cases because they don't have original notes and just copies of it since it has changed hands so many times. Simply put whoever is first position lein holder on the deed is actual homeowner. It gets a bit more complicated than that but a quick explaination. __________________ PLEASE WAIT WHILE BIDEN ADMIN UNINSTALLS ITSELF..... ██████████████████▒ 99.5% complete. Last edited by onwebcam; 09-02-2013 at 05:58 PM..

09-02-2013, 06:32 PM	#7
purecane Annakin Skywalker Industry Role: Join Date: Jan 2013 Location: megaminds' secret lair Posts: 1,324	You both make very good points on the first discussion, I also have a mortgage brokerage background and the missing link in all of this , IMO, is the local appraisers allowing such a huge bubble in the first place. Palm coast Florida, just north of me, is a perfect example of this. I bought my first house for 73K in '98, house lot package. The empty lot next to mine sold for 64K just about two years later....my lot was offered at 5500$. As far as your second question, remember when Obama talked about the "redistribution of wealth" ????? He was lying and what he really meant was, "we own the land here and everything on it".... Bailout my ass __________________ [email protected]

09-02-2013, 05:52 PM	#2
epitome So Fucking Lame Industry Role: Join Date: Jun 2009 Location: St. Petersburg, FL Posts: 12,156	They are actually ending back up in the loan serving departments of banks. Most big banks added that service as it can be quite profitable. So they are really the trustee for the syndication investors. Syndication was a way for banks to pretty much make unlimited loans. Banks can only lend what they have, minus reserves. So what they did was give the mortgage and then bundled it to sell off the investors, thereby giving them the cash to lend again. Most banks continued to service the loan through their servicing subsidiary, acting as trustee. There are a ton of fees to earn in loan servicing, especially if the house is foreclosed on. That is why banks were not interested in doing short sales until they were forced to. They'd earn a lot more in fees pushing it through foreclosure. Banks, as they always seem to do, figured out how to make money on both sides. If Wells Fargo gave you a mortgage and syndicated it, you would often still send your payments to Wells Fargo as servicer. They would then cut checks to the investors.