Sub-Prime Mortgage Securities Explained
By Kurt O'Keefe, Attorney at Law on Oct 16, 2007 in Michigan
Foreclosures continue to soar as defaults on mortgages, mostly sub-prime, increase.
The best explanation I have read of how the sub-prime mortgage market, and the securities it supports, is unraveling, is in Fortune magazine linked above.
Just because people have or manage a lot of money, does not mean they are smart.
Undocumented loans, meaning no income verification, secured by, homes with no equity, assuming the bogus appraisals were accurate. Many of these loans were guaranteed to default. Many of them were, but the investors were salvaged by appreciating real estate, so the defaulting borrowers could sell and pay off the mortgages.
Villains galore. My previous favorite, the ratings agencies, put in the usual warnings about no guarantees, but also rated likelihood of future default based on historical models during times of no doc loans, no 125% loan to equity loans, et cetera, thus wildly underestimating the actual default rate now being experienced.
But the article gives me a new candidate, the Wall Street firms that designed and packaged and sold the securities based on these mortgages.
Turns out Goldman seems to have made more money by shorting, that is, betting that sub-prime securities would decline in value, than it lost on the decline in the value of the securities themselves.
Now, that is smart.
Wonder how the people who bought those securities feel about this development.
If you liked that post, then try these...
What To Expect At Your First Bankruptcy Appointment by Michael G. Doan, San Diego Bankruptcy Attorney
Means Test on Old or High Mileage Cars by L. Jed Berliner, Massachusetts Bankruptcy Attorney
I Own My Vehicle Outright--Will I Lose It If I File Bankruptcy? by Karen Oakes, Southern Oregon Bankruptcy Attorney
You must be logged in to post a comment.