Cool! Residential Mortgage Backed Securitization Process

How awesome is this info-porn of the Residential Mortgage Backed Securitization process via Credit Suisse?

This puts into context exactly how the various mortgage flavors (Prime, Alt-A, Sub-prime) get packaged and resold.

Rmbs

Graphic courtesy of the Credit Suisse U.S. Mortgage Strategy Group

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Here’s an even bigger GIF version

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What's been said:

Discussions found on the web:
  1. andrew755 commented on Jul 27

    Wow it feels like the end of the world today….. I hope we dont crash:(

  2. Christopher Laudani commented on Jul 27

    I like it! I think I’ll make it my Christmas card this year.

  3. KP commented on Jul 27

    Schwing!

  4. johntron commented on Jul 27

    In the end, the problem isn’t with the financial instrument itself, but the leverage used to enhance a “safe” bet, a la LTCM.

    In hindsight, it was pretty dumb to lever up to buy Alt-A’s or etc….but some 30-something financial engineering quant’s model said it was a sure thing and “stress tested.” A model is only good as the underlying assumptions.

    I’m waiting to hear word of a carry trade fund or covered call fund collapsing.

    Anyone willing to hold over the weekend? The worst is over, right? hahaha, isn’t that how Black Tuesday, 1998, etc. happened.

  5. johntron commented on Jul 27

    looking for a forced liquidation in IBM LMT GD….perhaps that’ll be the all clear sign.

    good luck everyone

  6. Hedley Lamarr commented on Jul 27

    the problem isn’t with the financial instrument itself, but the leverage used to enhance a “safe” bet

    Well, um, yah.

    Investment trusts and holding companies weren’t in themselves big villains in 1929 either.

    But if you were Goldman Sachs or Sam Insull you used them as “leverage to enhance safe bets”.

    The rest is (apparently forgotten) history.

  7. dying bull commented on Jul 27

    I dont think we are ever going to see another green day again……. I’ve sold everything I own. I give up!

  8. KP commented on Jul 27

    Not yet a bull slaughter, but definitely a good pantsing.

  9. KP commented on Jul 27

    What’s funny is the people yesterday, after the market giving up 300 points out of 14000 calling for diaper change from the Fed. Seriously….what happens if something substantial actually happens?

  10. dying bull commented on Jul 27

    Something has happened, look at this market it is a nitemare.

    People are just throwing stocks out the window and look at the vix heating up. It is scary!!!

  11. johntron commented on Jul 27

    scary will be when/if EEM IBM AAPL GD and carry trade correct hard. (look at DBV pull back but still well off lows)

    We’re still in correction, pause-that-refreshes mode, but a lot of people are sitting on hefty gains.

    Time to be soiling yourself is if you see SPX making continuous quarterly lows.

  12. michael schumacher commented on Jul 27

    I have to agree with KP there. People calling it over underestimate the ability of the powers that be to control events. Bush has talked up Al Queda more and more over the last several weeks while talking up the economy.

    If an “event” occurs the PPT will be on the job however they can’t stem panic selling, which most people have not even seen on a relative scale for about 7 years now.

    That 30 something money manager related in an above post has no clue on how to moderate risk…just to take it…..and leverage it, because in the end it’s not his/her money and that bonus sure looks good at the end of the year.

    Ciao
    MS

  13. Estragon commented on Jul 27

    Dying bull,

    You must be pretty young. This market isn’t scary at all. Until very recently, this sort of thing (~5% selloff) was perfectly normal, expected, and even seen as healthy. It moves stock from weak hands to strong, and puts some whackage into unrealistically priced momo stocks.

    This selloff has been pretty orderly. In a truly scary market, bids just disappear. Margin calls happen en masse. Maidens aren’t thrown into the volcano single file, they line up those massive dump trucks like they use in mining. Then they close the exchange, and everyone flies blind.

    Nope, this is just another day at the office (so far).

  14. W.Edwards commented on Jul 27

    By historical standards, the down days recently we’ve seen really aren’t that special or uncommon. However, it’s been so long since we’ve seen it like this, the herd actually believed that things have changed, it becomes more stable, recessions won’t occur all because financial engineering and market globalization has altered the marketplace so that “it’s different this time”! Just because the market hasn’t reacted the same way as it has in the past doesn’t mean that it’s not eventually going to react…it’ll just react in a way that you don’t expect!

  15. John commented on Jul 27

    Anyone who thinks the current stock market is scary or a nightmare needs to do some homework.

    Study a chart of the S&P500 that goes back several decades; you can go back to 1970 on BigCharts.com. You will see that it is NORMAL to have a 10% correction on average about every 1-1/2 years (calling the 2000-02 period as one decline). This is true for the 1970’s, 1980’s, and 1990’s, which had very distinct economic and market environments.

    What is NOT normal is the very long absence of such corrections since March of 2003.

    Sorry, 5% drops are NOTHING, even if they occur in just a few days. Those who are bothered by this don’t know what they are doing and need to change their attitudes and/or asset allocations. Investors who are truly investing for the long term (at least a decade and not just next quarter) should actually WELCOME lower prices and higher volatility.

  16. michael schumacher commented on Jul 27

    Just a little observation…..you absolutley know that the market will par back this loss because if it does not in about an hour’s time the margin calls will hit and take it down further.

    And as I write that it will do the exact opposite I’m sure and I’ll be wrong……

    They are trying really hard to get oil over that hump in the last half an hour.

    Ciao
    MS

  17. babygal commented on Jul 27

    Thank you for the BIG gif-only way I could read!

  18. Donny commented on Jul 27

    “Sorry, 5% drops are NOTHING, even if they occur in just a few days. Those who are bothered by this don’t know what they are doing and need to change their attitudes and/or asset allocations.”

    Many of us are not as bothered by the recent drop in the markets, as much as we are with the underlining fundamentals that support the economy. To ignore the storm that is brewing in the credit & housing markets is just foolish. What’s happening now in the market is simply a derivative of what is becoming more obvious in the economy each day. In other words, many of us “investors” believe the smoke that once gave us cover to participate on the long side of this bubble economy, is blowing away … and the wind is getting stronger each week.

  19. BDG123 commented on Jul 27

    The end state problem is not the subprime market. Nor is the ultimate problem the leverage used to “manage” risk or lever these products. Now, that does not mean financial markets will not shudder if some type(s) of financial market event occurs. They surely will. But, those are simply symptoms.

    The real problems aren’t being talked about. And, there are many.

  20. John commented on Jul 27

    Donny,

    Excellent point with which I fully agree. My comment was in response to those who react with disbelief that markets actually go down at all, let alone in response to a brewing storm that is there for all to see.

  21. michael schumacher commented on Jul 27

    And right on cue the market gives up it’s loss right before the margin calls hit big time.

    Too funny…..

    Pool shark-

    I searched for that video and could’nt find it….I gather you could’nt either??

    Ciao
    MS

  22. Lord commented on Jul 27

    It is interesting how heavily agencies weight towards fixed rates. Not much resetting risk there though falling prices will take their toll. On the other hand, the non-agencies are heavily into adjustables and subprime adjustables at that, and often as much IO and Option stuff as non-IO.

  23. Jay Weinstein commented on Jul 27

    Let’s face it–the stock market is a ridiculously stupid entity. I get sick of the idiots in the media who give it credit for “discounting” the future –that is so much crock. I describe it as a place where millions of relatively intelligent people gather to produce really stupid decisions.

    Here is my solution: shut the stock market down. Take all the out of work Wall Streeters, brokers, and other financial barnacles and have them bus tables and cut lawns. Then deport all illegal immigrants, as we won’t need them any more. Two problems solved with one stroke! LOLLL

    Probably a good time for me to go on vacation!!

    Best to all!

  24. techy2468 commented on Jul 27

    BDG123 ….if you dont mind can you please list the problems you are talking about…thanks.

  25. techy2468 commented on Jul 27

    Jay Weinstein ………. this is a capitalist system…..we are supposed to be greedy within the rules…

    all the bankers and stock brokers are doing the same….playing within the rules…

    i dont see anything wrong with that……its the job of government to stay ahead of the game and make rules so that markets are not taken for ride by greedy individuals playing with other’s money.

  26. Jdog33 commented on Jul 27

    Wall Steet is where mom and pop come to “invest” for their retirement and where Wall Steet brokers/traders rip-off their “investments” so they can buy a house in the Hamptons and vacation at Atlantis every year. Trust me, been there, done that. It is a rigged system and everyone “in the game” knows it.

    Just don’t let the idiots who are investing in these wonderful 401k’s figure out how it works.

    Face it, with a sh!t market, Americans are f-ed bit time. Look, this “fothy” market has returned a massive 4.3% return on the S&P YTD. Wow, lots of main street America getting rich in this thing. So, what does Wall Street do, take them down and cut them off at their knees.

    I’m just pissed off my SPX put hit its limit order and sold -185 into this -500 point “correction”.

  27. rebound commented on Jul 27

    People who do not like the stock market should not “choose” to invest in the stock market. You are free to do whatever you want with your available cash. Put it in the bank, under a mattress, send kids to college, start a small business, or one could even invest in therapy to deal with your anger.

    Wall Street has probably changed very little over time, as it is an industry run by human beings.

    And if you don’t work on Wall Street, the industry you do work in has its own set of problems.

  28. rebound commented on Jul 27

    MS,

    “And right on cue the market gives up it’s loss right before the margin calls hit big time.”

    How do you determine where these critical regions are? Are these technical indicators that risk damage at some point, or is there a tracking index or some other metric you can read which shows where margin calls are going to be triggered?

    You also seem to have a scoop on when the auctions take place which result in morning bounces. Where are you getting this data? Please post links if you can.

  29. Jdog33 commented on Jul 27

    Rebound,

    Tell me how a typical family making $40 – $50K per year has any chance to pay for those kids colleges (remember everyone touting the 529 plans) or hope to retire before age 70 (which at that time odds are you will get cancer and die) without the market giving you at least 8% per year? Your comments about mattresses and such are just stupid. Of course you have to be in the market to have a chance, but when this kind of crap happens, it gives people a sense of hopelessness.

    S&P is now at a YTD return of 2.8%. This with the backdrop of the highest profit growth in years, very low P/E multiples, large stock buybacks, rapidly accelerating global economy, yada, friggin yadda, yadda.

    Face it, the game is rigged and guys like you LOVE to steal from the dead bodies lying in the gutter. My anger is the fact that this “capitalist” country is going to become socialist faster than you can say “oh no” and weeks like this are why we are headed there. You can steal some of the money some of the time, but if you steal too much, the masses will revolt.

  30. Pool Shark commented on Jul 27

    MS,

    Nope, just the image.

    But upon seeing the image I suspect anyone over 35 will immediately recall the video (and the effectiveness of Kevin Bacon’s pleas for calm).

  31. micahel schumacher commented on Jul 27

    I am merely commenting on the mechanics of margin call. The timing of them are transparent as they look to be made within about an hour and a half towards the close-I could be off a bit on the actual timing but hey what’s a few minutes.

    Now is it coincidence that the market erased it’s earlier losses to be above 13,400 during the time that a margin call would be activated? I do not think so hence I am speculating on why the market got brought up only to fall even further a short time later.

    If you had’nt noticed I am VERY cynical when it comes to is being said as opposed to what is being done. It gets me in trouble at times but I’m (financially) much better because of it rather than in spite of it.

    The auctions:

    http://fms.treas.gov/tip/index.html

    You can even sign up for an email alert…..

    There was another one today as well:

    http://fms.treas.gov/tip/auctions/tio-auction-results-348-07272007.pdf

    Another $3billion thrown at the desks of the traders, I mean broker/dealers.

    In three days Hank Paulsen (who has been on every TV show and print media imaginable today) has thrown $22 billion via the “auction” process straight into the market. That is not the actions of a man (or anyone else FTM) who believes “it” is contained.

    This does’nt reflect what has gone on over at the Fed in concert with this:

    http://www.newyorkfed.org/markets/omo/dmm/temp.cfm

    The morning bounce is predictable only from the standpoint of watching the futures get juiced over night and prior to the market opening. Last night, as the Nikkei was down almost 2% our futures on the Dow were up almost 35 points……..total and complete insanity. So really I am saying that it is more obvious when there really is not much good news or carry-over effect from europe and asia. You can also see it develop when the SPY “suddenly” goes to the HOD when the overall market is just coming off a bottom. Blind buying at several pennies above the ask is usually how this occurs.

    I am not trying to be some conspiracy theorist by trying to blame the market for my problems. I actually have done quite well considering my overall feeling is one of bearishness however that does not mean you can’t take advantage of all of this froth, go long on the right stocks and prosper along with the crazy people who think that this is all fundamental and will correct itself, upwards, for no other reason than (insert any perma bull argument here).

    I’d say that in the game of musical chairs…several got taken away this week, but last week did give clues. When we hit the “record” it was on a dist. day, tuesday’s 60 point up day was a dist. day.

    Will it continue?… I have no idea but I’m guessing we have not heard the last from the Ber”hank”e Put.

    have a great Weekend all

    Ciao
    MS (could you believe that McLaren just got to walk away??)

  32. zell commented on Jul 27

    Well said, MS..

  33. Tanta commented on Jul 27

    Barry, dear, this isn’t a process. It’s a break-out of mortgage outstandings by type of mortgage and execution.

    The chart of the actual process is way busier than that.

    I also note that I posted this thing several months ago, and my commenters started in on the mathematical errors within 20 minutes. Guess we’re geekier than you all.

    Cheers.

  34. jrf commented on Jul 27

    Looks like were about to have a…..

    BLOG fight!

    LOL

  35. wisedup commented on Jul 27

    what would the transaction costs have to be to return to rational decision making? Wall Street these days is looking more and more like a horse race track.

  36. rebound commented on Jul 28

    MS,

    Great details in your response. Thanks!

  37. rebound commented on Jul 28

    Jdog33,

    I stand by my comments. You are angry. If I could meet you in person I would buy you a couple drinks and let you vent.

    And after you had some scotch in you, I’d still say that after taxes (a whole other discussion) you are in control of your funds. A free man. If you fundamentally distrust Wall Street, then invest it somewhere else. Yes, under a mattress (or in a personal safe), in a savings account or CD, in a small business, or buy some gold, or whatever. These are all totally legitimate and served many of our grand parents well.

    You said “…without the market giving you at least 8% per year?” Whaaaaat? Giving you 8%? Well, maybe if you are fortunate to exist during an economic expansion and happen to participate in the market during that macro time frame.

    And what makes you think I work on Wall Street? Real wages are goin’ down, bro. I’m in an apartment hoping the decline in real estate prices will allow me to get into a house. And of course there is inflation ex inflation which we all enjoy on a day to day basis. I read this blog to try and learn a bit from the community to improve my trading and econ skillz.

    And how is a family making 40K-50K going to put the kids through college and retire? Well, they might not be able to and that’s just life. It might take a generation or two.

    BTW: The vast majority of people responding to Barry’s posts here are a quite skeptical bunch … just like yourself. There is no stealing “… from the dead bodies lying in the gutter” going on around here!!!!

    Wait. I cant’ resist. You have some scotch in you now, right? Your sense of humor is coming back?

    …Maybe there is some stealing from dead bodies lying in the gutter. You confessed you earned a nickel or two playing SPX puts, stealing from those poor souls mom and pop dead in the gutter. You VULTURE!! Or maybe just a sea gull.

    I understand your frustration and fear that our capitalist society will slip toward socialism. I fear the same thing. I would argue that we are already there with timber and agriculture subsidies, Medicare, Social Security, Amtrak, publicly funded roads, art, schools, and on and on. But I’m starting to think that it can’t happen … because we are bankrupt. The public may want more safety nets and nanny state stuff, but the nets we already have are not funded.

    The good news is that this country is very resourceful, and we have been through these cycles, as a people, a couple times now.

    http://en.wikipedia.org/wiki/Gilded_Age

    http://www.amazon.com/Freedom-Fear-American-Depression-1929-1945/dp/0195038347

  38. sloppyjoe commented on Aug 15

    Wall street is populated by anything other than human beings. Take care jdogg33. And dont forget that foreign traders gamble on sub-prime mortgages and hedge funds, and tend to be astute enough to call when the market indicates that mortgages are defaulting at significant rates. So if they call, and not enough mortgages are being paid, where will the money to pay the call come from?

  39. Heyman Nationwide commented on Aug 16

    Wall Street is for suckers and the shifty billionairs. The suckers invest for retirement. And lose most of their gains to the billionairs.
    As P.T. Barnum once said…”THERE’S A SUCKER BORN EVERY MINUTE.” In the United States? It’s every second!
    I’ve told my employer to shove their 401k program for years. Why bother? I’ll work till I drop.
    As for OUR politicians not saying a word about this Corporate rip off? Change starts from the bottom up. Time to replace these puppets.

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