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To reiterate and sum up - during the crisis the price of mortgage backed assets was declining in a very low rate environment because of increased risk of defaul
by JackFr 4y ago
To reiterate and sum up - during the crisis the price of mortgage backed assets was declining in a very low rate environment because of increased risk of default. In the current environment the price of mortgage backed assets are declining because of a high rate environment. Both are bad for non-bank lenders who are typically fairly leveraged and rely on short term lines of credit for that leverage.
The big difference is that the underlying loans are still money-good, they’re just paying a low rate of interest.
- t_mann 4y agoagree, good summary. in very simplifying algebra, if you have a fixed mortgage rate r and a market interest rate i, then you'd expect the wholesale market price p of the loan to adjust such that i ~ r/p plus some markups for risk, cost, profit,... so if r is fixed and i is pushed up by the Fed, then thing that has to give is p (going down), even if the risk markup doesn't change
- salawat 4y agoIf everyone gets it wrong however, it devolves to: -rip
- thunky 4y agoStill money-good now, but if higher rates push down prices and owners go underwater and default in large numbers, maybe not so money-good later.