Monday, April 28, 2008

Ambac was complaining ...

that someone "tricked" them into guaranteeing ABS CDO backed by Bear Stearns 2007 ABS bond.

Here's the story, would you be surprised basically it's about they got taken to the cleaner?

Douglas Renfield-Miller, an executive vice president at Ambac, said Thursday in an interview that the company's policies will pay bondholders unconditionally, even in the event of fraud.In a case where a loan is determined to have been misrepresented "then Ambac may have recourse against the issuer to repurchase that loan," he added.A bigger claim would involve an entire insurance deal that was fraudulent.

This could give Ambac a claim against the issuer for any claim payments made.Ambac's worst-performing deal covers home equity lines of credit, packaged into securities by Bear Stearns Cos. (BSC) in 2007. Over-60-day delinquencies in the underlying loans have shot up to 81% of the current balance loans in the transaction.That delinquency rate is a multiple of the average for such securities, according to a Standard and Poor's report issued Thursday.

Total delinquencies for 2007 second mortgage-backed securities that had their ratings lowered hit 11.88% in March, the ratings agency said. Individual transactions have projected ultimate losses ranging from 11.56% to 88.36%.A Bear Stearns spokesman did not immediately return a phone call asking for comment.

"Financial guarantors did not sign up for the fraud that appears to have been rampant in the mortgage market," Ambac said in an emailed response to questions Friday. "As our positions continue to develop in this area, any assumptions about recoveries will be built into our loss reserving against particular transactions. Hopefully, our efforts will also prevent some deals from becoming impaired in the first place."

So I figure what the heck, maybe I take a gander what it is just for shitkicking fun:

Nine months old mortgages!! 92% refinance, and most of those managed to even cash out $$$ during the credit crunch in 2007. Kudos to BSC, the hero of little subprime midgets. (Hmm, Just occured to me, this is what avoiding reset through refi would look like, eeeekkk ... )

How was the deal supposed to perform? (For the BBB bond of that deal which was backing the CDO Ambac was complaining about)

Well, do you prefer Libor minus 15,000 or Libor minus 24,000? By that yield, does it mean the whole thing is wiped out in 3 and a half weeks or four? WTF.


Neil said...

Hey Mtg,

Thanks for sharing, great blog

Jim Rogers is calling for $8 on Fannie..

Your post is strangely troubling and accurate... agreed that govt will not let Fannie / Freddie go out of business but don't you think that pain has to go high before bailout comes, so wouldn't it be more reasonable to see $10-15 and then go long?

That being said, nice call on the long for FNM, curious how much more upside there is?

What's your target short term on FXI?

Agree with you on DUG, SMN, SRS, doing covered calls on each of the above, thanks

MTGSPY said...

Wait for FNM earnings and observe whether they make money. THere's a thousand way to turn non-performing loan into performing in the book of tricks. One of them is called "loss mitigation/loan mod".
BAC has done it and FNM is very likely doing so, resulting in earnings that beats, and could be positive. Their historical record here is good so you will be under severe pressure even if you're eventually right.

You don't take a $25 company and try make it $15. There's no meat on that bone. Besides if you make that statement, look around at the financials. Are you saying other shares like C will out of nowhere right now turn from %27 to $15 as well?

To slam a stock like this and make as much money as possible the only logic is to pump it to $40-50 for a quarter or two and have every insider cash out, big investors out.

Then the fundamental catches up in June 2009 and boom stocks drop to $15 - but not before then.

Then big investors and insiders pile back via stock grants, options, etc. and that's when USA gave up and give FRE $40B and FNM $60 B in the form of Equity investment. "Give" as in no-strings-attached.

Sure some academic FRE/FNM hired would justify that cash giveaway as quid-pro-quo but it'll likely take like 100 years if ever for US taxpayer to "feel" any benefit.

I would say you can fight here and die. Or take a cautious hide and seek guerilla warfare and max out the pain on the system, not you. Anyway this whole thing in 3-4 years will just be a bad memory.

Jeffrey said...


Great blog. I Read many of your posts on the ticker at Denninger.

Keep up the great work.

The edge111 on ticker


MTGSPY said...

anytime jeff. thanks.

Neil said...

mtgspy, good post, are you forecasting a rally for the general market as well over the summer?

MTGSPY said...

I havent thought about things in "rally" or "tanking" concepts for a while Neil.

I have been focusing my energy to just stay alive and occasionally use whatever information I have to make money on individual stocks. Is that making sense?

Generally speaking yes we are approaching the "BOOYAH" moment where an irreversible decline happens, but that is like a chaotic orbit of a comet that's at sometimes look hyperbolic and not elliptical so u think when we past Pluto your ass is safe from the Sun's grilling, but boy are you wrong. :)