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Margin calls on mortgage lenders at unprecedented levels

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Re: Margin calls on mortgage lenders at unprecedented levels

#51

Post by onetimemanytime »

LatteLazy wrote: post #29

Am I reading this right? Brokers hedged their position to reduce the risk of rate rises, and when the Fed came in and helped them out, they're now complaining they can't also claim from the hedge. That's like blaming firemen for putting out your house fire because you now can't claim as much from your insurance. And some Brokers over-hedged. That's speculation and that's exactly what unsophisticated, under capitalize…

The way I understood it, some benefited but some had already hedged so they got screwed. In essence, the Fed disrupted the normal way of doing things and some bankers will get screwed. Oh well. :)

Re: Margin calls on mortgage lenders at unprecedented levels

#52

Post by leetcrew »

bluntfang wrote: post #49
leetcrew wrote: post #48

Earlier quoted context omitted.

even in normal times, I don't think lenders are lining up around the block to give people with no income a mortgage for a house they intend to rent out. there are a lot of landlords with mortgages on several rental properties. if they have enough viable properties, it doesn't usually look super risky to give them another mortgage, since they can smooth the cashflow from the other properties in the case of a small num…

sounds like they assessed the risk incorrectly or their risk tolerance didn't equal the actual risks they took. Isn't this normal? If I buy stock with all my money, and the stock dramatically lowers in price, I don't get to complain to the government and get free money, do I?

first of all, if lenders did the kind of DD you are talking about, it would preclude most ordinary w-2 employees ever getting a mortgage for a home. "they have only one source of income! they could lose it at any time!" these people are a much bigger risk than some landlord trying to get a mortgage for their nth rental property.

to answer your second question: if you, a private individual, bet all your money on investments that go belly up, you're just screwed. if you're a large financial institution, you get to argue that your going under would create rippling consequences that outweigh the erosion of moral hazard that comes with a bailout. it's not fair or reasonable, but it's reality.

Re: Margin calls on mortgage lenders at unprecedented levels

#53

Post by viklove »

bradleyjg wrote: post #18
Random_ernest wrote: post #7

For everyone thinking of the 2008 financial crysis: My layman point-of-view is that the market for mortgage backed securities in the US is nearly 20 times smaller compared to 2006 https://www.statista.com/statistics/275746/rmbs-issuance-in-...

Because we’ve nationalized the mortgage lending industry while keeping up a very expensive veneer of a private market in the form of originators and servicers. It’s the pessimal combination of capitalism and socialism.

Socialism for wealthy corporations, rugged individualism for the rest of us. It's the American way.

Re: Margin calls on mortgage lenders at unprecedented levels

#54

Post by verroq »

onetimemanytime wrote: post #51
LatteLazy wrote: post #29

Am I reading this right? Brokers hedged their position to reduce the risk of rate rises, and when the Fed came in and helped them out, they're now complaining they can't also claim from the hedge. That's like blaming firemen for putting out your house fire because you now can't claim as much from your insurance. And some Brokers over-hedged. That's speculation and that's exactly what unsophisticated, under capitalize…

The way I understood it, some benefited but some had already hedged so they got screwed. In essence, the Fed disrupted the normal way of doing things and some bankers will get screwed. Oh well. :)

So the people that hedged their risks lost and the idiots that didn’t get bailed out?

Re: Margin calls on mortgage lenders at unprecedented levels

#55

Post by rv-de »

verroq wrote: post #54
onetimemanytime wrote: post #51

Earlier quoted context omitted.

The way I understood it, some benefited but some had already hedged so they got screwed. In essence, the Fed disrupted the normal way of doing things and some bankers will get screwed. Oh well. :)

So the people that hedged their risks lost and the idiots that didn’t get bailed out?

on financial markets nobody who gambles should get bailed out. future generations of investment bankers would simply price in the bail out. I'm pretty sure they are doing that already.

how risky are you willing bet when you know that you only have to fail really hard to get bailed out?

Re: Margin calls on mortgage lenders at unprecedented levels

#57

Post by LatteLazy »

verroq wrote: post #54
onetimemanytime wrote: post #51

Earlier quoted context omitted.

The way I understood it, some benefited but some had already hedged so they got screwed. In essence, the Fed disrupted the normal way of doing things and some bankers will get screwed. Oh well. :)

So the people that hedged their risks lost and the idiots that didn’t get bailed out?

Everyone was bailed out but the fed effectively. The people that hedged end up a little behind, because they paid a premium to be hedged. Such is the joy of fed action: the biggest risk takers profit the most. But no one has lost because of this...

Re: Margin calls on mortgage lenders at unprecedented levels

#58

Post by bluntfang »

leetcrew wrote: post #52
bluntfang wrote: post #49

Earlier quoted context omitted.

sounds like they assessed the risk incorrectly or their risk tolerance didn't equal the actual risks they took. Isn't this normal? If I buy stock with all my money, and the stock dramatically lowers in price, I don't get to complain to the government and get free money, do I?

first of all, if lenders did the kind of DD you are talking about, it would preclude most ordinary w-2 employees ever getting a mortgage for a home. "they have only one source of income! they could lose it at any time!" these people are a much bigger risk than some landlord trying to get a mortgage for their nth rental property. to answer your second question: if you, a private individual, bet all your money on inves…

>"they have only one source of income! they could lose it at any time!" these people are a much bigger risk than some landlord trying to get a mortgage for their nth rental property.

Fairly certain source of income isn't the only variable. What about rainy day fund? Aren't individuals encouraged to have 3-6 months worth of expenses in cash for emergencies? Shouldn't the lender assure that this is the case before lending?

Re: Margin calls on mortgage lenders at unprecedented levels

#59

Post by ivalm »

alexpetralia wrote: post #31
ivalm wrote: post #14

Earlier quoted context omitted.

More complicated is that the shorts on MBS which mortgage servicers use to hedge their exposure to non performing loans are also losing money. As Fed buys more and more MBS the loan services can no longer recoup money via their hedge, can’t get payment out of borrowers, and often can’t even resell the loan since lots of them are recently refinanced and now with forebarence have not made their first payment.

They can't sell their MBS to the Fed? Who exactly is the Fed buying from then?

Owner and servicer are different companies.

Servicer does not own the loan, they simply paid an upfront cost to have the right to collect payments from homeowners (from which they take a cut). So the owner can sell their MBS to Fed to reduce uncertainty on their balance sheet, but servicer is just stuck servicing the loan — they already paid the upfront cost for the right to service the loan. That’s why they hedge by shorting MBS.

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