Sunday, August 19, 2007

"Missed signs ... mortgage meltdown"

Calculated Risk did a short item, "Neutron Loans: 'Kill people, Leave Vacant Houses'", on this New York Times article, "How Missed Signs Contributed to a Mortgage Meltdown". The Times article is a good read, beginning:

All through last year, Jim Melcher saw the signs of a rapidly deteriorating American housing market — riskier mortgages, rising delinquencies and more homes falling into foreclosure. And with $100 million in assets at his hedge fund, Balestra Capital, he was in a position to do something about it.

So in October, as mortgage-backed bonds were still flying high, he bet $10 million that these bonds would plunge in value, using complex derivatives available to any institutional investor. As his gamble began to pay off in the first months of 2007, Mr. Melcher, a money manager based in New York, plowed the profits into ever bigger wagers that the mortgage crisis would worsen further, eventually risking some $60 million of the fund’s money.

“We saw the opportunity of a lifetime, and since then events have unfolded on schedule,” he said. Mr. Melcher’s flagship fund has since doubled in value ....

The extent of the turmoil has stunned much of Wall Street, but as Mr. Melcher’s case makes clear, there were ample warning signs that a financial time bomb in the form of subprime mortgages was ticking quietly for months, if not years. ...

4 comments:

Anonymous said...

Excellent article. S&P Moody's and Fitch rated those BBB tranches and AAA. Seems like some potential liability for them. If investors can't trust the ratings this is going to create hurt bonds going forward.

Mr.Mortgage said...

tp://www.thegreatloanblog.blogspot.com/

Lenders and Brokers:Only focus on conforming and full doc. Full article.

Anonymous said...

Who should I get in contact with about a states own laws about mortgage broker bonds and as such, how would I get a mortgage bonds form? I life in England and am considering moving to America, don’t know where yet however I was doing some general reading about housing and came across the term mortgage broker bonds and am a little confused, is it a mortgage or a loan to acquire a mortgage?
Also if I want to set up life insurance do I need insurance bonds? Or can I simply open a policy with a company? Im a little confuse by some of the jargon. I am not moving anytime soon but thought I should be aware of things I will need to understand.

Forrest Cutler said...

Was this the guy that recently retired with his fund being up something like 800%?

Subprime= gone...and that's fine with me and anyone else that wants to stay in the mortgage industry. The best mortgage rates are still out there if you look. Even some 100% options...