Tag Archives: MBS

News, Politics, Government

It Wasn't Speculation That Killed The Banks

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By Tim Worstall, Contributor Or at least it wasn’t speculation that killed the British banks. Speculation is usually thought of as all of that investment bank stuff: high speed trading, foreign exchange, CDOs, swaps, MBS and all of that good fun of men shouting at each other over screens. We’ve just had the Parliamentary report into one of the UK bank failures, Halifax Bank of Scotland, and such activities are given an entirely clean bill of health. Essentially, because the bank didn’t do any of those things and yet it still went bust. It was, in the words of the Guardian Given its reckless lending, HBOS would have gone down with or without a wider financial crisis, and what the commission found most shocking was the comprehensive inability of the top three HBOS bankers to even admit this. It went bust the way that banks have been going bust for centuries: it lent too much money to people who were not able to pay it back. Or, as the report states in its own words: This was a traditional bank failure pure and simple. It was a case of a bank pursuing traditional banking activities and pursuing them badly. The bank just didn’t do any of the new whizzy stuff and thus cannot have been killed by doing new whizzy stuff. …read more

Source: FULL ARTICLE at Forbes Latest

Business, Finance, Occupation & Industry

Will Regulators Squelch Mortgage REITs' Juicy Yields?

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By Amanda Alix, The Motley Fool

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For yield-starved investors, the plethora of mortgage REITs going public over the past few years has been a godsend. As fans of the sector well know, the requirement that these trusts share 90% of their profits with investors usually results in yields in the double digits. Even Annaly Capital , which has had to shrink its dividend because of the policies of the Federal Reserve, still sports a yield over 11%.

The mREIT explosion has drawn the attention of regulators, though, and talk of squelching these superlative returns by imposing limitations on the way these companies do business has begun to pick up, after several months of silence.

Expanding assets prompt concern
As mREITs rack up a larger asset base, some rule makers began to express concern that one or more failures in this sector could harm the mortgage industry — or, more troubling, the economy at large. In August 2011, the Securities and Exchange Commission announced it would be looking into regulating mREITs as if they were investment firms, much like mutual funds. This followed a tough time for these REITs, in which concerns regarding Europe caused selling that sent values plummeting.

Since then, things have been quieter on that front, but a recent Bloomberg article shows that regulators have recently restarted the debate. Of particular concern are the two largest mREITs, Annaly and American Capital Agency . Together, these two companies hold approximately $234,000 in assets — primarily government-insured mortgage-backed securities.

What’s the risk?
In addition to their exploding girth, some officials worry about the high leverage these trusts use to make money as well as their use of repurchase agreements, since this was the formula that helped cause the financial crisis. As entities that invest in real estate, mREITs have been exempt from certain rules. If mREITs are folded into the category of investment funds, however, they will fall under the auspices of the Investment Act of 1940 — effectively quashing their ability to use high leverage to produce their historic yields.

Will recent comments about mREIT risks from Fed Governor Jeremy Stein or Federal Reserve Bank of New York President William Dudley nudge the SEC to take action? Perhaps not. As some analysts point out, the industry is still tiny, holding less than 10% of all MBS products. In addition, most report lower leverage ratios today than they used in 2008.

Many commenters also note how important management is in this business, seeing little risk in the leadership of Annaly and American Capital Agency. One mREIT that seems to inspire less faith is Armour Residential . This company holds less than $21 million in assets, but it has seen its asset base skyrocket by nearly 30% year over year, and some question the ability of management to keep up.

Are the sector’s tasty yields soon to be a thing of the past? For mREIT investors, this may well be the most important issue facing the industry this year.

There’s no question Annaly …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Are These 2 Banks Taking a Jumbo Risk?

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By Amanda Alix, The Motley Fool

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There’s no doubt that housing is recovering, and prices are rising faster than analysts anticipated — a whopping 8.08% in January, compared to one year previous.

One sector that is red-hot is the luxury home market, which has spurred a resurgence of jumbo mortgages, those megaloans that are considered too big and risky to garner backing by Fannie and Freddie. Not only are these large loans being offered by the likes of JPMorgan Chase and First Republic Bank , but they are being securitized and sold to yield-hungry investors at a quickening pace.

Once considered too hot handle
Jumbo loans were everybody’s darling in the salad days of 2005 to 2006, when the pace of origination allowed for $1.2 trillion worth of securitizations each year. After the financial crash, securities featuring these outsized loans — generally those over $417,000, except in tonier areas where the limit may be $625,500 — stalled, but they began gaining again last year. Securitization reached a post-crash high of $3.5 billion in 2012, and has reached $2.1 billion so far this year.

At first, ambitious mortgage REIT Redwood Trust , sometimes partnering with Credit Suisse, was the lone entity packaging jumbos into mortgage-backed securities and raking in the profits selling them to yield-starved investors. Now, JPMorgan, with partner EverBank Financial , is offering a bundle of these tasty MBSes, backed by nearly $1 billion in these extra-large loans.

Although these MBSes are not backed by any government agency, ratings agencies consider them less risky than you might think — for a couple of reasons. Most of these loans are made to wealthy people with high credit scores, and down payments are typically high, around 65%. So far, the reputation of many of these loans has held up, at least in Redwood’s case. The mREIT has picked its loans well, and not one has defaulted since 2010.

Interestingly, the MBS sales by JPMorgan and First Republic feature jumbo loans originated by both those banks. This is something new, as previous sales, like those of Redwood, contained loans purchased from other originators. Everbank, which serves customers primarily via the Internet, is also offering some of its own homemade loans.

Less risky, this time around?
The very fact that these loans are not insured by Fannie and Freddie make them more risky than agency mortgages, but otherwise, the risk profile is lower now than a few years ago.

In the aftermath of the housing crash, high-end homes saw their values plummet, just like mid-priced homes. The first quarter of 2009, according to Bloomberg, saw a spike in luxury-home foreclosure of 127%, though values have stabilized since then. Indeed, according to the numbers cited above, prices are actually rising.

It looks like the success of Redwood has encouraged others to jump into a rejuvenated jumbo-loan game, which, though less perilous than several years ago, still holds risks. Hopefully, investors who also dive in will do so with their eyes wide open.

With …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Annaly Makes Its Move on Crexus: Is Chimera Next?

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By Amanda Alix, The Motley Fool

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It promises to be an exciting week for fans of Annaly Capital . After its somewhat surprising announcement last November, the venerable mortgage REIT made good on its intention to buy up the shares of CreXus Investments not already in its portfolio by raising its bid at the end of January. Everyone sat tight for 45 days, during which CreXus was allowed to entertain other offers. Today, the bell sounded, and the deal is on.

A planned move into new territory
As Annaly has watched its spread tighten, it has been forced to look at other options. Always steadfast in its commitment to purchasing only mortgage-backed securities backed by Fannie and Freddie, the move into commercial paper was met with skepticism by some. Even critics admitted, however, that the move will likely immediately be accretive to Annaly’s bottom line.

In a pre-dawn announcement, Annaly reported that its new subsidiary, CXS Acquisition Corporation, has started the ball rolling. The company has tendered its offer for $13.00 per share — plus a sweetener for shareholders — in a proposal that will expire at the close of business on the 16th of next month. All indications point to CreXus being welcomed further into the bosom of Annaly very soon.

What about Chimera?
Annaly knows CreXus well since it has managed the company through a subsidiary called FIDAC since 2009. Those in tune with Annaly know that in addition to the commercial MBS company, FIDAC also manages Chimera Investment , a hybrid mREIT with a reputation as a bit of a scalawag.

Might Annaly move next to acquire Chimera? It’s certainly possible, despite that trust’s dodgy reputation. Now that Annaly has finally decided to move outside of its longtime comfort zone, a hybrid mREIT might be just what it is looking for.

There are problems, however. After a silence of over one year, Chimera finally filed several disclosures that were appallingly overdue, and some of what it revealed makes the company look less than inviting.

However, the worst seems to be behind it, and investors didn’t punish the stock. If Chimera continues to file timely — something that may become more likely if it is bought outright by Annaly — it may actually be able to turn its reputation around, pushing its shares higher than the 22% increase it has experienced so far this year.

Was the filing done, after all this time, to clear the decks for an offer from Annaly? Time will tell, but I think the answer is “yes.”

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

Introduction To Asset-Backed And Mortgage-Backed Securities

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By Investopedia, Contributor Asset-backed securities (ABS) and mortgage-backed securities (MBS) are two important types of asset classes. MBS are securities created from the pooling of mortgages, and then sold to interested investors, whereas ABS have evolved out of MBS and are created from the pooling of non-mortgage assets. These are usually backed by credit card receivables, home equity loans, student loans and auto loans. The ABS market was developed in the 1980s and has become increasingly important to the U.S. debt market. In this article, we will go through the structure, some examples of ABS and valuation.
Source: FULL ARTICLE at Forbes Latest