Saturday, July 26, 2008

The "bailout"

The name says it all.


Greenie said...

How is the new world going to look like in your assessement? Let's say someone with a good job in Boston wants to buy a house next month, and he applies to the bank for a loan. What next? Bank goes to Fannie, Fannie goes to treasury and treasury goes to Chinese/Japanese? Who will decide how much down payment to ask for? How much will the downpayment be anyway? Will it change from next week? Who loses money, if the guy eventually defaults? Can you give me a visual walk through of the new world?

MTGSPY said...

Well the bank will try contact FRE/FNM or intermediary who can sell to FRE/FNM. From what I have heard it will be very difficult to get anything through. Then of course there's FHA, who will be taking refinances for those who are willing to stay at their homes for the next 5 years and admit they lost 20% of the house values. Treasury relation to FRE/FNM will be indirect and will flow through the new housing Tzar handpicked by paulson. The guy would most likely curtail lending by tightening standard here and there.

Anonymous said...

Will the spread between Treasuries and GSE's narrow since it is now officially goverment backed?

Why buy a treasury when you can get 1%+ more on GSE's paper?

Won't this reduce mortgage rates and help the housing market?

Greenie said...

I think the spread will narrow, but by treasury interest rate going up. So, overall the cost structure will go up for the government.

Anonymous said...

mister spy

i have a quick question for you

you mentioned the covered bonds to stay on the balance sheet as not working due to SIV ability to obtain cheap short-term financing

why could a corp not obtain cheap financing via repo if they use covered bonds?

could you, if you get the chance elaborate a bit on this

thanks mister spy

MTGSPY said...

Well I was thinking about that when it occured to me that repo cost is determined by two things (primarily anyway):

1 repo term (how long do u want to borrow)


2) type of collateral.

Then the answer for 1) and 2), respectively are:

Is a mortgage loan typically not fixed rate these days and 30-yr in terms? What kind of haircut does the guy want at the repo desk given this risk?

Is a "mortgage loan" a "hot" type of collateral these days?

D said...

That kind of liquidity arrangement shouldn't give FI investors confidence. The SIV-CP funding structure is superior, it was the lending standards that blew that game up. They screwed themselves and the 4 mother banks parading with Paulsen announcing that they are going to pump the structure doesn't mean the pump will take hold.

MTGSPY said...

back in the days you could sell the subs and even the PREPAYMENT PENALTY (!!!) - now they can only sell the senior and have to fund the subs at 100%. And the senior will get a decent haircut should they take it somewhere. And S&P wont winkwinknodnod as easily even if there would be such element to screw a few AAAs here and there.

No platypus milk for you, borrowers.

D said...

MTg -

When you read through the bill did you identify whether, or not they kicked FHA DPA programs?


"This is Africa" - where we bleed the soil red. haha

MTGSPY said...

No they won't be gone and if conflicting with some other law then some new law just has to be written to exempt it. Too many black votes on the line.

Keep up the GOOD fight.