Mortgage Bankers Getting Margin Calls

[NitroZ7]

I tried to copy the link but the jest of the story is that mortgage bankers are getting margin calls on their loan portfolio because the fed making massive mortgage purchases is creating volatility with mortgage interest rates and this is affecting the interest rate swaps the mortgage bankers purchased. It almost seems like it is the reverse of the credit default swap crisis we saw in 2008 but this time it is the person paying the premium that is in trouble rather than the person who sold the swap to them. There are going to be a lot of crazy unintended consequences we will likely see out of all of this.

[CatFan]

None of your words mean anything. A margin call involves stock investments.

[Bassmaster96]

Is this it?

https://finance.yahoo.com/news/mortg...222840594.html

[NitroZ7]

None of your words mean anything. A margin call involves stock investments.

They borrowed money from a warehouse lender or someone else to loan that money out in the form of mortgages they made and the pledged the loan (just like you would a stock) as collateral. When the value of the collateral falls below a threshold, which the value of a bond or mortgage would do depending on the direction of mortgage rates, then you would get a call to add collateral to rebalance you account. Mortgage loans, stocks bonds it is still the same.

[NitroZ7]

Is this it?

https://finance.yahoo.com/news/mortg...222840594.html

That is the story. I found it in CNBC International but could only share it on Facebook.

[Bassmaster96]

It's intense. I'd hate to be in their spot.

[NitroZ7]

It's intense. I'd hate to be in their spot.

Funny thing is we had a large commercial refinance transaction scheduled this week. Out of nowhere the lender pulled out and said for right now we are "pencils down". The Lender wasn't a large traditional bank it was an investment company that most people would know. They either had investors that backed out, had a warehouse Lender that pulled the plug or they just got cold feet over doing the deal. It brought back alot of memories from 2008 when we would see that happen often.

[NitroZ7]

Here is an interesting video talking about the mortgage market. It is mostly focused on residential markets with regards to hedges. The commercial mortgage market, in my opinion, is more an issue of these MBS being a credit quality issue given that the underlying properties are likely to produce much less revenue and violate the debt covenants. This could turn out to be as bad as 2008 but lets hope not.

[Neverest]

I believe they are referring to underlying tranches that finance their mortgage portfolios...

[NitroZ7]

I believe they are referring to underlying tranches that finance their mortgage portfolios...

Here is what I have taken from the articles I have read. If you do not have buyers that want to buy the securities (bundled mortgages residential or commercial) then the value of the securities fall and then you all of a sudden have lenders not wanting to loan money to bundle new securities because there will not be buyers for those. One of the MREITS mentioned in a Bloomberg article was the lender on the refinance transaction I referenced above. It has lost almost 80% of its value. I actually hope the fed does not bail out any MREITS. They leveraged up and gambled, and many are private equity companies, so they should take their medicine like a regular investor would. They can be replaced and the assets will get sold to a better company at a steep discount.

[NitroZ7]

Here is an interview from Colony Capital. I'm sorry but I don't feel like we need to bail them out. Commercial real estate is a risky venture and people saw that internet sales were going to hurt retail. He bet wrong and I'm not sure why the fed needs to adjust to save them. He keeps saying there are no losses but the price is what a current buyer is willing to pay a current seller.

[Neverest]

Agreed. Investments, by their nature, are inherently risky. Stimulus that benefits institutional investors under the guise of preserving employment is often a ruse. Should there be a corresponding effort directed at private investors whom bear the same investment risk? Why not a zero-sum game? They want to reap the rewards but mitigate the risk with bail out strategies. You know, “the too big to fail” mantra. Where does it end?