Thursday, November 20, 2014

PLS is dead and will not be revived by anyone! ever!

PLS will never exist in America again.
Two main reasons:
1. Private Loan securities need an insurer. That was AIG in past. No chance anyone wants that job again.
 No one will take on subprime, No money down, No income verified loans again. AIG got a huge haircut and was lucky to survive not only what the banks did to it before the crisis of 2008, but what the government did to it after they took it over.
2. Private Loan securities need a Platform to sell its loans. This was Bear Sterns. They went bankrupt.
In the years leading up to the failure, Bear Stearns was heavily involved in securitization and issued large amounts ofasset-backed securities, which in the case of mortgages were pioneered by Lewis Ranieri, "the father of mortgage securities".[1] As investor losses mounted in those markets in 2006 and 2007, the company actually increased its exposure, especially the mortgage-backed assets that were central to the subprime mortgage crisis. In March 2008, theFederal Reserve Bank of New York provided an emergency loan to try to avert a sudden collapse of the company. The company could not be saved, however, and was sold to JP Morgan Chase for $10 per share, a price far below its pre-crisis 52-week high of $133.20 per share

As you can see without those 2 PLS cant exist. So how does CSP by our FHFA play into this?
CSP will do the job of securitizing loans that are transfered from by players in the mortgage industry. 
At first only fannie and freddie. More than likely it will remain that way forever. But to humor everyone PLS serviced counrtywide loans and Chase and Citi loans along with many others. CSP is like the govt taking over the business of Bear sterns. This way they are in complete control of the system. With Bear Sterns they lost control and it became too late. This is the government goal. CSP which is owned and run by CSS, Fannie and Freddie will allow everyone to compete on the world stage for bond sales that will be over looked by fannie and freddie and they will be over looked by the FHFA. This eliminates number 2 from the list and gives the USA a level ground for securitization that will be monitored by the FHFA.

What about number 1? AIG? Well thats where risk sharing bonds come in and Fannie and Freddie give their expertise and efforts to sending back the bad loans from the bonds to the banks that originated them. This is also how Affordable Housing is kept in place. Fannie still takes on the loans the banks would not want to bundle up and send to CSP under their name. They transfer the 3% down and the lower Fico's to Fannie and Freddie and they keep their book clean, Provided they write them up correctly and Fannie approves them, they will become Fannies to securitize at the CSP. The other thing that Fannie and Freddie will do with the CSP is compete on the same ground for the Non bank mortgages. CSP is really not a bad idea. CSS will run it and Fannie and Freddie will be the biggest players in it. CSP will allow the 5 trillion in bonds that Fannie and Freddie have to remain with Fannie and Freddie and that will keep the National debt from growing by 30% overnight. This is a win from everyone. Fannie and Freddie will no longer exist as we know them, they will be changed and will still remain the biggest players in the mortgage market.  All the lies will become truths. 

The only thing missing is the government explicitly backing up the bonds at the CSP. This is where congress is wanted to change the rules, but not necessary. Fannie and Freddie could be the backstop with their capital since they own the CSP and CSS which operates it. The backstop could be theirs as it has been for over 70 years. Truth is Fannie and Freddie only lost money between 2005-2008 because they were taken over in September of 2008 and there was still 4 months left for the Treasury to force all the bad loans on Fannie and Freddys books. Youll notice No one gives the statistics of how much Fannie and Freddie lost from 2005-SEP2008! There are articles to backup what Im saying how the treasury forced the bad loans from the banks onto F&F immediately after Sep2008 to the tune of $20 billion each a month. In 4 months time that would have totaled $160 billion in bad bank debt pushed on the GSE books. It is not a coincidence that number is very close to the $188 billion Fannie and Freddie needed in a bailout from Treasury. Remember the $188 is with interest. So for the sake of argument lets call it $160 billion needed in bailout.

Ok back on topic, I hope this helps explain how the system is about to work and why PLS is dead forever. 

I will add some thoughts here:
Lie: Wind down fannie mae
Lie: Fannie and Freddie will no longer exist as we know them.
Lie: Shutter Fannie and Freddie
Lie: Only congress can decide the Future of housing

Truth: Wind down means remove the toxic assets from Fannies book.
Truth: Fannie will exist differently, but still be Huge players in mortgages. Still shareholder owned.
Truth: Shutter Fannie, They are closing the main building and moving to a new location.
Truth: Only congress can decide future, FHFA deals in the present only. Watts words.

1 comment:

  1. My explanations of the two reasons why PLS are dead: the moral hazard problem and the math problem
    http://www.americanbanker.com/bankthink/why-former-investors-despair-of-returning-to-mortgages-1061962-1.html
    http://www.nationalmortgagenews.com/news/origination/private-mortgage-securitizations-have-a-math-problem-1042801-1.html



    ReplyDelete

leave a reply: