so I hear and obey. Pillage at your own leisure fellas.
I will share one more secret with you all.
Do you remember 2002-2005?
When refinancing was heavy? When rates were low?
A mortgage investor like Freddie and Fannie would lose a lot of money from mortgages prepaying EARLY (due to incessant repeat cashouts and declining rates) if they don't hedge.
So they hedge using CHEAP options on interest rates. in other words, OUT OF THE MONEY options.
Including these and still Not-marking to market, Freddie Mac already in their own words, negative capital.
There's 1 - 2 yrs life left on these options, and they're still out of the money for both FRE, and more so for FNM.
Combined, these are "valued" at $20B+ when by admission, their book value is negative including that +$20B.
How much confidence do you have, that these options will be in the money and realize the value of that $20B, given your own experience trading out of the money option?
Given that house prices are not controllable variables, do you think the government would relinguish the last thing they control, interest rate?
Or even if they do, have you seen that mortgage rates are taking a life on their own, that they continually going up just from risk based pricing.
Hehehehheh. $20B just from NON-MORTGAGE book in these GSEs, going poof in a year or so.
And how's the prime book losses pal? I really want to keep the story about prime defaults as a turkey for y'all before I go for winter vacation.
The right enemy
5 years ago