15 replies to this topic

[zedor]

The nominal value of the asset backing these is not the issue --- its the total cost to collect and unwind the bonds. Think about it. Lets say you have a million dollars worth of face value sub prime backed paper that is supposed to yield 6%. Unlike a bond the income stream is both interest and principal. It has now stopped paying. 1.No income coming in 2.The bond is bundled for who knows how many properties in how many different geographic locations. 3. Someone has to unbundle it into individual pieces 4. Someone has to pay for eviction and foreclosure -- lawyers don't come cheap 5 Someone has to take possession of each property and repair it to be able to put on the market 6 A real estate agent is going to take 6% to sell 7 As a bond holder you dont have the time, people, or resources to run after this mess and collect the collateral or what is left of it after all the expenses. The whole process could take 2 years to unwind. So lets add the percentages up Lost income 6% X2years =12% Commission to sell properties =6% Lawyers fees = 6% Cost to rehabilitate property =6% Cost of property tax on property for 2 years = 6% Discount value of property at time of sale =50% That is now 86% of the face value lost. And I am sure there are more hidden costs. Yes, some vulchers will make a killing if they buy it at 5 cents on the dollar but not if they pay much more.

Edited by zedor, 05 November 2007 - 05:39 AM.

[mike123]

Companies like CFC has the obligation to buy the bad loans back from investors. Wonder why CFC is still standing? Taking toxic waste from investment banks. CFC will fail, not until it has bought most bad loans back.

[OEXCHAOS]

The nominal value of the asset backing these is not the issue --- its the total cost to collect and unwind the bonds.

Think about it. Lets say you have a million dollars worth of face value sub prime backed paper that is supposed to yield 6%. Unlike a bond the income stream is both interest and principal. It has now stopped paying.

1.No income coming in

2.The bond is bundled for who knows how many properties in how many different geographic locations.

3. Someone has to unbundle it into individual pieces

4. Someone has to pay for eviction and foreclosure -- lawyers don't come cheap

5 Someone has to take possession of each property and repair it to be able to put on the market

6 A real estate agent is going to take 6% to sell

7 As a bond holder you dont have the time, people, or resources to run after this mess and collect the collateral or what is left of it after all the expenses.

The whole process could take 2 years to unwind.

So lets add the percentages up

Lost income 6% X2years =12%

Commission to sell properties =6%

Lawyers fees = 6%

Cost to rehabilitate property =6%

Cost of property tax on property for 2 years = 6%

Discount value of property at time of sale =50%

That is now 86% of the face value lost. And I am sure there are more hidden costs. Yes, some vultures will make a killing if they buy it at 5 cents on the dollar but not if they pay much more.

OK, we've got a big problem with your math. Loss of income is not loss of principle. Add back in 12%. Additionally, these are SUB PRIME. They don't pay 6%. More like 7-8%, SOME of which are and will continue to pay. Some of those loans will pay 100% principle and interest. You can't reasonably presume that the entire porfolio will go teats up. There are stats for you to look at. Do it before you throw stuff like this out. You can discount it, but at least do minimal research if you're going to toss this stuff out. I'd guess that you need to add back 30% of principle and another 7% interest on that, or 2.3%. I think you also are overestimating property taxes. Most are less than 2% nation wide and not on the real value of the properties. So, add back 3% at a minimum. I don't know about lawyers fees (but I can find out from a friend who does this en masse for a big firm, if you like), so I'll accept that at face. Same with the sales agent, though there may be a discount there. The final value, too, I think is low. I'd say that many of those properties might have a 20% lower value, and perhaps an additional fire-sale discount of 10%, assuming NO repairs. So add back the 6% and add back 20%.

I'd say that in real life, with a little bit of care we're looking at a value of 77% on those properties, less 2% to tear the CDO apart and work with the homeowners.

That's my uneducated opinion. Index Trader? Any real experts in this field?

Mark

[Cirrus]

Mark is correct IMO. Zedor's math was very biased. The only issue is the unknown and fraud in issuing the loans. There worth something...the question is how much. That question--the unkown--is what's really causing problems out there.

[OEXCHAOS]

Indeed. The normal market for these CDO's likes nice, fungible stuff. They want nice hard numbers to look at. Those numbers aren't there right now and won't be there for some time. Not only that, but if they were, they won't trust them (once bitten and all that). This is a huge opportunity for some "right brained" investors who know how to build teams and get warm bodies on the ground and into the fray. Those folks exist. Just give them time to move over from VC. Mark

[zedor]

The nominal value of the asset backing these is not the issue --- its the total cost to collect and unwind the bonds.

Think about it. Lets say you have a million dollars worth of face value sub prime backed paper that is supposed to yield 6%. Unlike a bond the income stream is both interest and principal. It has now stopped paying.

1.No income coming in

2.The bond is bundled for who knows how many properties in how many different geographic locations.

3. Someone has to unbundle it into individual pieces

4. Someone has to pay for eviction and foreclosure -- lawyers don't come cheap

5 Someone has to take possession of each property and repair it to be able to put on the market

6 A real estate agent is going to take 6% to sell

7 As a bond holder you dont have the time, people, or resources to run after this mess and collect the collateral or what is left of it after all the expenses.

The whole process could take 2 years to unwind.

So lets add the percentages up

Lost income 6% X2years =12%

Commission to sell properties =6%

Lawyers fees = 6%

Cost to rehabilitate property =6%

Cost of property tax on property for 2 years = 6%

Discount value of property at time of sale =50%

That is now 86% of the face value lost. And I am sure there are more hidden costs. Yes, some vultures will make a killing if they buy it at 5 cents on the dollar but not if they pay much more.

OK, we've got a big problem with your math. Loss of income is not loss of principle. Add back in 12%. Additionally, these are SUB PRIME. They don't pay 6%. More like 7-8%, SOME of which are and will continue to pay. Some of those loans will pay 100% principle and interest. You can't reasonably presume that the entire portfolio will go teats up. There are stats for you to look at. Do it before you throw stuff like this out. You can discount it, but at least do minimal research if you're going to toss this stuff out. I'd guess that you need to add back 30% of principle and another 7% interest on that, or 2.3%. I think you also are overestimating property taxes. Most are less than 2% nation wide and not on the real value of the properties. So, add back 3% at a minimum. I don't know about lawyers fees (but I can find out from a friend who does this en masse for a big firm, if you like), so I'll accept that at face. Same with the sales agent, though there may be a discount there. The final value, too, I think is low. I'd say that many of those properties might have a 20% lower value, and perhaps an additional fire-sale discount of 10%, assuming NO repairs. So add back the 6% and add back 20%.

I'd say that in real life, with a little bit of care we're looking at a value of 77% on those properties, less 2% to tear the CDO apart and work with the homeowners.

That's my uneducated opinion. Index Trader? Any real experts in this field?

Mark

AS I said back of the envelope. But if you think a bond buyer can do without getting their interest for 2 years and not consider it a loss you are a dreamer. Why buy it if you dont get anything ?

But lets look at the proof. Merrill has so far written off 8 billion (and is now being investigated for hiding more ) Citi 5 plus some 11 billion coming up. These bonds are not getting a bid that is a fact. You bid on it Mark. Put your money where your ideas are. The reason they are not getting a bid is they are murky - undocumented - untraceable pieces of toxic fraud. And no one can get their hands around it.

These were bundled up into by unscrupulous unethical entities, hidden from shareholders view by being put off balance (ie fraud in practice even if somehow made legal looking) they collected millions in bonuses and are going to stiff pension funds and the taxpayers with the bill. Off balance should be a crime and made 100% illegal. Either a company is responsible for something or not. Period.

Now tell us how many of the SIVs you are buying ?

Edited by zedor, 05 November 2007 - 08:51 AM.

[NAV]

OK, we've got a big problem with your math. Loss of income is not loss of principle. Add back in 12%. Additionally, these are SUB PRIME. They don't pay 6%. More like 7-8%, SOME of which are and will continue to pay. Some of those loans will pay 100% principle and interest. You can't reasonably presume that the entire portfolio will go teats up. There are stats for you to look at. Do it before you throw stuff like this out. You can discount it, but at least do minimal research if you're going to toss this stuff out. I'd guess that you need to add back 30% of principle and another 7% interest on that, or 2.3%. I think you also are overestimating property taxes. Most are less than 2% nation wide and not on the real value of the properties. So, add back 3% at a minimum. I don't know about lawyers fees (but I can find out from a friend who does this en masse for a big firm, if you like), so I'll accept that at face. Same with the sales agent, though there may be a discount there. The final value, too, I think is low. I'd say that many of those properties might have a 20% lower value, and perhaps an additional fire-sale discount of 10%, assuming NO repairs. So add back the 6% and add back 20%.

I'd say that in real life, with a little bit of care we're looking at a value of 77% on those properties, less 2% to tear the CDO apart and work with the homeowners.

That's my uneducated opinion. Index Trader? Any real experts in this field?

Mark

These bonds are not getting a bid that is a fact. You bid on it Mark. Put your money where your ideas are. The reason they are not getting a bid is they are murky - undocumented - untraceable pieces of toxic fraud. And no one can get their hands around it.

Zedor,

Now you put your money where your mouth is. Sell me those bonds for zero. I am a buyer and will be putting my money where my mouth is

[OEXCHAOS]

Better yet, if someone comes to me with a fund run by competent VC dudes and a crew of old fashioned bankers on the ground in each of general markets, selling me an managed interest in those cdo's at $0.50 on the buck, I'm looking at it hard. At $0.30, I'll just buy them without looking. Note: I'm NOT a courageous risk taker, either.

[zedor]

These bonds are not getting a bid that is a fact. You bid on it Mark. Put your money where your ideas are. The reason they are not getting a bid is they are murky - undocumented - untraceable pieces of toxic fraud. And no one can get their hands around it.

Zedor,

Now you put your money where your mouth is. Sell me those bonds for zero. I am a buyer and will be putting my money where my mouth is

There is I am sure a huge bid ask spread. Why should I sell something I dont have for zero. That is a nonsense reply. Citi is writing off 11 billion today guess they dont know what they are doing. Go submit your resume to run their SIV department.

[MacRo]

SIVs, fundamentally, are little more than off-balance RV vehicles trying to arb spreads between ABCP and higher yielding ******** (much of it mortgage-backed). When you don't learn from history and try to put on LTCM-style trades without managing your risk properly, you get whacked. End of story. And, tangentially, I would let NAV manage my money any day over some leveraged-to-the-hilt RV idiot.

Edited by MacRo, 05 November 2007 - 10:06 AM.