The return of Sub-Prime, part 1

HAMISH_MCTAVISH

Subprime mortgages may have been the most lucrative bet of 2012 for hedge funds, with some gaining more than 20% by buying up troubled financial crisis era mortgages.

That's a bet that's been paying off handsomely since 2010, according to Bloomberg Hedge Fund Indices.

"It's been an unusually attractive time to invest in the mortgage market," said Steve Kuhn, head of Pine River Capital Management's $3.5 billion fixed income fund. "A tremendous amount of capital got lost or removed, and that's created a very large hole."

It's proved to be a profitable void for hedge funds to fill.

According to sources familiar with the funds, those generating the best returns jumped deep into the pool of mortgage-backed securities, products that still terrify investors four year after the worst of the financial crisis.

"There had been an idea that almost anyone with negative equity in their home would default," said Kuhn. "Borrowers have behaved better, and there have been fewer defaults than people had thought."

http://money.cnn.com/2013/01/04/investing/hedge-funds-subprime-mortgages/index.html?iid=HP_River

Interesting.

Won't be long before the reality, ie, that default rates were not nearly as bad as expected, ensures a return to limited sub prime lending.

The entire sub prime crisis was not, for the most part, caused by defaults of the majority of loans categorised as sub prime. It was caused by the opaque and confusing structure of the bonds, and the fear (largely now proven wrong) that the underlying performance would be so bad the bonds were worthless.

It was the mis-allocation of risk, where a small minority of truly dreadful loans were hidden in packages of much better sub prime loans, and then that was sliced and diced with prime loans, and the whole thing given a AAA rating, that was the real killer.

Now the crisis is over, and people can see actual performance data on these bonds over the last 5 years rather than hyperbole, speculation and guesswork, calmer heads are prevailing and the value of sub-prime MBS are rising rapidly.

dryhat

... Whatever

The fact remains that high house prices are not a result of supply and demand but the availability of credit.

HAMISH_MCTAVISH

dryhat wrote: »

... Whatever

The fact remains that high house prices are not a result of supply and demand but the availability of credit.

If that was the main reason for high prices, then average prices would be a lot more than 10% down nationally, seeing as how 70% of mortgage funding has been withdrawn from the market.;)

Graham_Devon

You are actually hoping for sub prime lending again Hamish?

That would include wishing for all the misery they bought to people caught in the downturn through no fault of their own?

Seems you'll hope and prey for anything that will increase your houseprice, and sod the conesquences to others.

ILW

Are these borrowers still paying sub prime interest rates?

coastline

Something thats not mentioned often on here...well not since I've been looking in...the number of cash sales in the property market...40% and some regions higher..
Has this got something to with London and the South East holding up against the rest of the country..??




http://www.bbc.co.uk/news/business-13116262

HAMISH_MCTAVISH

Graham_Devon wrote: »

You are actually hoping for sub prime lending again Hamish?

That would include wishing for all the misery they bought to people caught in the downturn through no fault of their own?

There is nothing inherently wrong with most sub-prime lending, so long as it is clearly labelled as such and not mis-sold as AAA.

As you've been told many times Graham, it wasn't the default rates from sub prime lending that caused the financial crisis.

It was the mis-selling of sub prime as AAA that caused global panic and the shut down of the credit markets.

The actual performance of these mortgage borrowers, as it turns out, has been massively better than the doom-mongers and panic merchants predicted.

Hence why the price on the bonds are soaring.

HAMISH_MCTAVISH

coastline wrote: »

Something thats not mentioned often on here...well not since I've been looking in...the number of cash sales in the property market...40% and some regions higher..

Has this got something to with London and the South East holding up against the rest of the country..??

Nope.

It's that cash sales have stayed constant, while mortgage rationing has halved the number of mortgage purchasers.

So cash sales as a proportion of all sales have doubled. Despite staying pretty much the same in absolute numbers.

dryhat

As I said in post#2 and it is fact ...

Without massive credit expansion, house prices wouldn't be as high as they are now.

It is nothing to do with supply and demand.

Graham_Devon

Hamish once again ignoring the collosal amounts of money thrown into the system and extreme low interest rates, to suggest the loans are doing well.

HAMISH_MCTAVISH

dryhat wrote: »

As I said in post#2 and it is fact ...

Without massive credit expansion, house prices wouldn't be as high as they are now.

It is nothing to do with supply and demand.

Just because you repeat such idiotic drivel certainly doesn't make it any less idiotic.

If that was the main reason for high prices, then average prices would be a lot more than 10% down nationally, seeing as how 70% of mortgage funding has been withdrawn from the market.:)

If house prices are nothing to do with supply and demand, then why does a 3 bed Victorian terrace in the North cost 60K, and a near identical 3 bed Victorian terrace in London cost 600K?

After all, credit is available everywhere equally.... the lending criteria in Preston is no different to the lending criteria in Chelsea.