Comments on: Freddie Mac and the inverse floaters, cont. A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: youniquelikeme Tue, 07 Feb 2012 20:58:32 +0000 Danny_Black, you seem to be a brash know-it-all; an unapologetic insulting cretin. Perhaps you might actually make some intelligent comments yourself, and not suggest that one, including the SEC, might actually be able to look at anyone’s mortgage and see what has actually transpired being that is what is being hidden in the shell game.

A forensic analyst took over a year to audit ONE mortgage to find all the layers of fraud and illegalities and there are layers of opaqueness deliberately designed to ensure one might never be able to get the true background, but go ahead and suggest it might be done.

Deny it all you wish, but the housing market will never stabilize nor become healthy, as long as past problems are not fixed, and mortgages are used as pawns to the detriment of all homeowners and the economy.

While in England and as a former banker, do you live in a flat or a home? Do you even have a mortgage? I know a favourite comment I get from my English friends is that ONLY bankers can afford a home in England. I suppose that may be where your distaste of anyone beneath you owning one might come from…

PS: you need not engage.

By: Danny_Black Tue, 07 Feb 2012 04:26:23 +0000 youniquelikeme, say something intelligent and I will engage with it. However, I suspect pigs will fly first.

By: youniquelikeme Mon, 06 Feb 2012 18:53:13 +0000 Danny_Black, it has become quite obvious that you hide behind insults.

Although you are a retired bankster who feels he deserves respect people should realize that it is elitists, like you, who would “pooh pooh” the criticism of the greedy/crooks involved in the economic crisis, who are perpetuating it.

The conflict of interest is the real story. That such financial pariahs would still be taking on risk is the real story. That any one would be paid 2.5 million to manage this conflict of interest is a real story. The mortgages behind the financial crisis and that housing is still used as bets and sliced and diced to obscurity is the real story.

By: youniquelikeme Sat, 04 Feb 2012 19:57:22 +0000 @y2k who said, ”
This inverse floater issue is small potatoes… fannie and freddie are making a little bit of money because they know which loans can’t refi due to rules their goverment overseers set. Why shouldn’t they make millions off the inverse floaters to very partially offset the many billions they lose enhancing the credit rating of 5 trillion dollars worth of home loans from BBB- to AA+.”

So the conflict of interest, even for a Government held agency, is OK? really? So when should anyone intervene … after another crisis? Were CDOs not once small potatoes, until crooks realized that they could make a killing dicing them into obscurity so that now refinancing is done to obscure that there never was a proper note or securitization in the first place?

Why does deja vu not bring on feelings of impending doom, yet merely evoke an “it’s ok it is small potatoes” response from a banker? Is that how your own community bank does business? (you have written in the past that it doesn’t, I know, but how can this small potatoes remark mean anything other than a lack of integrity?)

@Danny_Black, I was laughing in the previous article and this one, being you never really know much more than others … but use your own brand of mud tossing tactics to elevate your past from Bankster to benevolent gentleman banker who didn’t abuse the system… and do so by smearing anyone who dares to try to unearth the hucksters, past or present?

*Rolls eyes* that so many listen to you, being you are a former bankster so know “all about” what really went on to cause the crisis. It was all those filthy, greedy home owners fault for buying the property in the first place, right Danny? Look no further, is always your motto… as I read in your last replies in the previous Fannie and Freddie article.

You want to look up mortgages to get the “real” story? Perhaps check with MERS? OOOPS sorry but there is no info there being MERS is a cover for improper securitization and fraudulent practice. Look up the past mortgage and their notes? OOOPS, many notes were destroyed, and so were millions of mortgages and original documents destroyed and “missing” by shady bank and servicer practices. All of that was resolved though, wasn’t it? Nope? ooopps!

Perhaps you want to ask a county clerk? Ooops, sorry there was no proper registry of that mortgage. It was, however, resold 20 times and so cannot be traced. Perhaps check with the bank officials who signed the mortgages? Oops, that was done by robo signers, not officals! Oops, 9 of 10 of the mortgage holders are no longer in business anyway so Fannie and Freddie hold most of the mortgages! Well! Let’s check with them as surely they will know! Ooops I am getting a deja vu moment!

But like Danny would like us to think, does any of that matter? (nope, but really, isn’t all of that above THE REAL story behind the mortgage crisis that is never ending) This is simply another complicated and obscure instrument of finance and if anyone ever tries to figure it or end the trades, the Quants will be called in to obscure it all even more or design new instruments!

Who cares if the home owners and the taxpayers are the ones who are ultimately at risk, as what matters is that Fannie and Freddie get back in shape, by any means possible, to obscure the past and get on with business, as they are too danged big to fail!

Besides, we wouldn’t want to get in the way of the millions of dollars that the person who buys the floaters (He obviously deserves the 2.5 million salary for dealing with small potato risk!)

By: y2kurtus Thu, 02 Feb 2012 10:04:06 +0000 Felix I’m having a hard time getting my head around this:

“Now the FHFA, under Ed DeMarco, is a highly obstructionist agency which will always protect Frannie’s short-term interests over the broader health of the housing market and American homeowners.”

Fannie and Freddie as currently opperated exist solely to transfer wealth from the US treasury to borrowers. Their loans are currently at LEAST 100 basis points under the market. They are losing money as fast as the goverment will allow them to. We’re in for over 100 billion at this point aren’t we? What more do people want?

This inverse floater issue is small potatoes… fannie and freddie are making a little bit of money because they know which loans can’t refi due to rules their goverment overseers set. Why shouldn’t they make millions off the inverse floaters to very partially offset the many billions they lose enhancing the credit rating of 5 trillion dollars worth of home loans from BBB- to AA+.

By: Danny_Black Wed, 01 Feb 2012 20:18:54 +0000 realist50, thank you and luckily this area seems just obscure enough that no one noticed my idiotic mistake when i said inverse floaters are bets on interest rates rising when of course they are the polar 180 degree opposite.

klhoughton, my understanding of what is being discussed is that the inverse floaters are what was left after securitising and sell the other components off. It also appears that it was 29 deals with a total value of 20bn which means they did a flurry of relatively small deals.

For this to be a real story, one would have to look up the mortgages underlying those deals and see if there has been active interference to prevent those deals being refinanced and that that interference led to a material gain on the bonds. I would be relatively certain the answer to both those questions is no.

By: klhoughton Wed, 01 Feb 2012 18:51:05 +0000 realist50 at 12:56 gets to it in point five–buying Inverse Floaters should be a bad hedging tool for Freddie, given their business. Eisinger gets that correct.

Credit where due: FHFA looked at what they were doing, managed to do a bit of math, and told them to stop doing it.

The question, being obscured by the magnitudes (which are irrelevant if Freddie is indeed turning over its portfolio at a reasonable pace), is whether there is anything in the $5B linked to specific Freddie mortgages/tranches. Are they all jumbos? Owned by John (well, Cindy) McCain? In areas that have recovered, such as DC? Are they the only ARMs issued by Freddie in a period? Are they all ARMs without MI?

If it’s a hedge–or (more likely) a limited, data-driven bet on a portfolio of characteristics–then there really is no there there and it may well be (not the way to bet, but certainly possible) that FHFA was wrong to tell Freddie to stop.

The claim that needs to be substantiated is that there is something related to the Inverse Floaters that affects the way Freddie manages that portion of their portfolio. Haven’t seen that yet.

By: realist50 Wed, 01 Feb 2012 17:59:37 +0000 Alternate framework – don’t bother with these complicated details, just let me know the impact on Warren Buffett and his secretary. Isn’t that the new standard to evaluate public policy decisions?

By: realist50 Wed, 01 Feb 2012 17:56:31 +0000 I’m in a similar boat to TFF – this particular corner of finance is not my area of expertise. Danny Black and Yves Smith both seem to understand it much better than Eisenger, though, and the couple he found in PA was clearly a red herring sob story with no demonstrated connection to his story.

What I do see is this –

(1) At 9/30/11 (latest 10-Q), Freddie’s consolidated balance sheet had $2.2 trillion (that’s with a T) of assets. Just its book of trading and available for sale securities is $272 billion.

(2) The position in question is $5 billion of inverse floaters;

(3) The very nature of the GSE’s business is to buy mortgages, then slice and dice various risks – credit risk, prepayment risk correlated to interest rates falling, also interest rate risk of long-term fixed rate loans losing value when rates rise. Through securitization and hedges, Freddie retains some of this risk and offloads some of it to others;

(4) As part of (3), since at least the ’80’s mortgage bonds have been diced into interest only and principal only components, with prepayment risk being a big driver (I’m remembering Liar’s Poker for this one);

(5) We’re being asked by Mr. Eisinger to look at a $5 billion position in isolation, and assess its impact on Freddie’s risk profile and decision-making process with respect to refinancing. Again, that compares to $2.2 trillion in assets, a $650 billion retained portfolio (mentioned by the FHFA in its comment) or a $272 billion portfolio of trading and available for sale securities. His story had the sensational headline, “Freddie Mac Bets Against American Homeowners”. Not sure how that’s true since I think that Freddie is long American homeowners somewhere between $650 billion and $2.2 trillion;

(5) The FHFA has told Freddie, “Don’t keep adding to that $5 billion inverse floater position when structuring CMO’s in the future. We don’t think that you are managing that risk well.” Seems fair enough if FHFA’s staff is competent, since they can see the granular detail of Freddie’s portfolio;

So, is my takeaway to be that Freddie’s risk management isn’t great on at least 1% of its retained mortgage portfolio? Perhaps I already realized that based on the $150 billion f’ing dollars that the 2 GSE’s have received from the Treasury.

By: alwayslearning Wed, 01 Feb 2012 17:43:28 +0000 So nothing has changed.