{"id":1147,"date":"2007-03-14T22:25:29","date_gmt":"2007-03-15T05:25:29","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1147"},"modified":"2008-09-15T19:31:10","modified_gmt":"2008-09-16T02:31:10","slug":"bad-loans-buried-in-the-back-of-the-breadbox","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1147\/bad-loans-buried-in-the-back-of-the-breadbox\/","title":{"rendered":"BAD LOANS: Buried In The Back Of The BreadBox"},"content":{"rendered":"

Let me tell you a story about how the subprime mortgage market collapsed and millions of baby boomers had to accept less money in retirement. If you liked the Da Vinci Code<\/a>, you’re gonna love this one. It’s not wrapped up in sex, or murder, or corruption, just good-old fashioned “pass the buck<\/em>” and “what the little guy doesn’t know won’t hurt him<\/em>” attitudes.<\/p>\n

WARNING: If you are prone to believe conspiracy theories, you are going to curse, kick the cat, and be extremely pissed off after you finish reading this.<\/strong><\/p>\n

Here is the dirty little secret of the mortgage securitization boom of the last 5-10 years: The little guy gets stung with the losses.<\/em><\/p>\n

First, a little history lesson. It’s kind of boring but stick with me here. Mortgage backed securities (MBS) were originally the old Ginnie Mae pass-through certificates<\/a>. The VA or FHA packaged up their loans and sold them through Wall Street to little old ladies who wanted to “juice up the yield” on their portfolio. They were safe because they were backed by a government agency. They yielded more than treasuries because they were a conglomeration of various mortgages. The money was loaned at, oh… 14% (remember the early 80’s ?<\/em>) and the investors received, say…12%. It was a good deal because the little old lady could only get 9% on Certificates of Deposit<\/a>. The difference was spread among loan servicers, Wall Street, and even the gub-a-mint agency by employing this securitization tactic.<\/p>\n

The problem was that loan principal was returned, along with the interest, on the old Ginnie Mae pass-throughs. Little old ladies didn’t care because they weren’t going to live long enough to spend all of their money (these were 30 year issues<\/em>). However, Wall Street had problems selling these deals in bulk to institutions because of the prepayment features.<\/p>\n

An ambitious mail-room clerk named Lew Ranieri<\/a> worked at Salomon Brothers and saw an opportunity in the mid 80s. Salomon Brothers was hiring rocket scientists to create a new breed of mortgage-backed security, a collateralized mortgage obligation<\/a> (CMO), designed to more accurately predict the prepayment speed of the mortgages backing Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Let me tell you a story about how the subprime mortgage market collapsed and millions of baby boomers had to accept less money in retirement. If you liked the Da Vinci Code, you’re gonna love this one. It’s not wrapped up in sex, or murder, or corruption, just good-old fashioned “pass the buck” and “what […]<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,5],"tags":[],"class_list":{"0":"post-1147","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-enduring-interest","7":"category-real-estate","9":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":4455,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4455\/leveraged-loser-loans-lead-to-loss-of-liquidity\/","url_meta":{"origin":1147,"position":0},"title":"Leveraged Loser Loans Lead To Loss of Liquidity","author":"Brian Brady","date":"September 15, 2008","format":false,"excerpt":"I'm kicking this one up to the top, in honor of today's events.\u00a0 It's a historical look about the early MBS markets.\u00a0 Now before you jump me for my incorrect conclusion, I didn't realize that the hedge funds leveraged their loan holdings 10 to 1 (or more).\u00a0 That \"38 bucks\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1389,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1389\/so-bossyou-want-i-should-wacc-dis-guy\/","url_meta":{"origin":1147,"position":1},"title":"So, Boss…You Want I Should WACC Dis Guy?","author":"Brian Brady","date":"May 6, 2007","format":false,"excerpt":"You know how lenders are. We're always talking about WACC-ing a guy who borrows money. Do you REALLY know what we're tawkin' about, though? The Weighted Average Cost of Capital or WACC, is a corporate finance term used to measure the true cost of debt. You can find that figure\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10488,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/10488\/1-full-percentage-point-that-would-leave-a-mark\/","url_meta":{"origin":1147,"position":2},"title":"1 Full Percentage Point? That would leave a mark…..","author":"Tom Vanderwell","date":"December 3, 2009","format":false,"excerpt":"Okay, this Mr. Sack guy is the guy who manages the Fed's day to day dealing with the financial markets.\u00a0\u00a0 Here's what he had to say about rates yesterday:10 year Treasuries were .50% lower than they would have been without the program.Mortgage rates would be 1% higher if it weren't\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2455,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2455\/mortgage-cicerone-tony-gallegos\/","url_meta":{"origin":1147,"position":3},"title":"Mortgage Cicerone: Tony Gallegos","author":"Brian Brady","date":"December 31, 2007","format":false,"excerpt":"Tony Gallegos posted his top bloggers' list of 2007. Many of the lists published are a beauty pageant and none, to this date, mean a whole lot to MY industry; residential real estate finance. Tony's participation in MTG.net is a measured and intelligent position. It has to be; Tony is\u2026","rel":"","context":"In "Blog Carnivals"","block_context":{"text":"Blog Carnivals","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blog-carnivals\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1737,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1737\/ask-the-broker-did-i-invest-in-a-sub-prime-mortgage\/","url_meta":{"origin":1147,"position":4},"title":"Ask the Broker- Did I Invest in a Sub-Prime Mortgage?","author":"Brian Brady","date":"August 3, 2007","format":false,"excerpt":"Scott asks: How can you tell if you have a sub-prime mortgage bond in a portfolio? Scott, I'm taking a stab at this. I haven't sold securities in 14 years. Mortgage-backed securities, in the early 90s, were mostly Ginnie Mae pass-through certificates or Agency-issued pass-throughs and collateralized mortgage obligations (CMOs).\u2026","rel":"","context":"In "Ask the Broker"","block_context":{"text":"Ask the Broker","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/ask-the-broker\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1889,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1889\/arms-look-scary-before-they-look-good-or-how-wall-street-dupes-the-little-guy\/","url_meta":{"origin":1147,"position":5},"title":"ARMs Look Scary Before They Look Good or (How Wall Street Dupes the Little Guy)","author":"Brian Brady","date":"September 4, 2007","format":false,"excerpt":"I don't look real smart today, do I ? Mortgage rates in general took a fairly substantial dive during the previous week with longer term rates dropping double digits in most cases and some rates returning to mid-2006 levels. However, the Mortgage Bankers Association reported a spectacular increase in the\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1147","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=1147"}],"version-history":[{"count":1,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1147\/revisions"}],"predecessor-version":[{"id":4454,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1147\/revisions\/4454"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=1147"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=1147"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=1147"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}