It's nice to see recognition of the fact that the surge in ARM originations at a time of exceptionally low long-term fixed rates is not just a way of fudging borrower qualification, but a way of laying off interest rate and duration risk onto consumers. And wasn't it last summer that Mr. Greenspan spoke with such (for him) enthusiasm about the rationality of ARM borrowers? Of course the Fed knows where the risk is going.
The Times piece also has a very interesting bit about the extent to which the exotic products are being used not to qualify homebuyers, but to refinance fixed rate paper. This may be a secondary contribution to the price bubble, in the sense that serial refinancing to lower and lower payments keeps delinquency numbers down ("A rolling loan gathers no loss") which in turn encourages all the potential bagholders to keep some skin in the game.
Irony is not always clear on the Internet, but I assume your closing remark is ironic. I do not think there will be found undue mortgage liability at the large commercial banks, but I am puzzled as to which institutions are buying packaged mortgage debt.
I have to assume that when people refer to "packaged mortgage debt" they mean bulk pools of whole loans purchased from lenders, not securities or participations. Larger institutions buy that stuff in order to securitize and sell it; the thrifts and savings banks generally hold it to maturity.
Notice by the way that the Yen in declining in value against the dollar, and that adds to incentive for Japanese institutions to buy American mortgage backed securities.
My guess along with the Financial Times is that China will soon increase the value of its currency against the dollar to diffuse trade pressure. Whether this effects long term interest rates in turn will be interesting.
"The regulators think Banks are not in danger because they have shifted the risk to investors and borrowers."
Banks may have hedged their risk against a straightforward wave of mortgage defaults, but have they hedged against the follow-on effects on the general economy? Spreading the risk around isn't eliminating risk, especially when it's being done as a means of prolonging an ever-riskier status quo.
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It's nice to see recognition of the fact that the surge in ARM originations at a time of exceptionally low long-term fixed rates is not just a way of fudging borrower qualification, but a way of laying off interest rate and duration risk onto consumers. And wasn't it last summer that Mr. Greenspan spoke with such (for him) enthusiasm about the rationality of ARM borrowers? Of course the Fed knows where the risk is going.
The Times piece also has a very interesting bit about the extent to which the exotic products are being used not to qualify homebuyers, but to refinance fixed rate paper. This may be a secondary contribution to the price bubble, in the sense that serial refinancing to lower and lower payments keeps delinquency numbers down ("A rolling loan gathers no loss") which in turn encourages all the potential bagholders to keep some skin in the game.
CR
Irony is not always clear on the Internet, but I assume your closing remark is ironic. I do not think there will be found undue mortgage liability at the large commercial banks, but I am puzzled as to which institutions are buying packaged mortgage debt.
Inside the bubble - Tampa Bay Business Journal:
I have to assume that when people refer to "packaged mortgage debt" they mean bulk pools of whole loans purchased from lenders, not securities or participations. Larger institutions buy that stuff in order to securitize and sell it; the thrifts and savings banks generally hold it to maturity.
Jennifer, your assumption is correct!
Notice by the way that the Yen in declining in value against the dollar, and that adds to incentive for Japanese institutions to buy American mortgage backed securities.
Also, I would be surprised if the Bank of Japan did not hold a significant portfolio of mortgage backed securities. China? I tend to think not.
My guess along with the Financial Times is that China will soon increase the value of its currency against the dollar to diffuse trade pressure. Whether this effects long term interest rates in turn will be interesting.
Saw a commercial on TV today. It advertised reverse mortgages.
There seems to be interesting debate between Ben Bernanke and Martin Wolk - as I just reported over at Angrybear. BB: fundamentals. MW: speculation.
"The regulators think Banks are not in danger because they have shifted the risk to investors and borrowers."
Banks may have hedged their risk against a straightforward wave of mortgage defaults, but have they hedged against the follow-on effects on the general economy? Spreading the risk around isn't eliminating risk, especially when it's being done as a means of prolonging an ever-riskier status quo.
Ben Bernanke is representing the Administration and not debating in any true sense.
tanta, thx. I'd forgotten ag's comment to consumers on arms.
Shhh! I hope you don't mind but this is too much for me and I need to tell someone. I have found a website that is giving out FREE information about credit repair