3 ms·

Which is the bank or insurance company on the other side of this transaction?

rahimnathwani 3y ago
CMBS (commercial mortgage-backed securities) are usually structured by banks, but held by: - Insurance Companies - Pension Funds - Mutual Funds - Hedge Funds - Real Estate Investment Trusts (REITs) - Sovereign Wealth Funds As the servicer, Wells Fargo will be figuring out how to repossess or whatever. CMBS are usually (always?) non-recourse, i.e. they're secured only on the property. So if the property is worth less than the amount of the loan, the owner is not on the hook for the shortfall.
- lotsofpulp 3y ago
  > Pension Funds This very often ends up being taxpayer funded defined benefit pensions, so at the end of the day, the loss is with future taxpayers.
- JumpinJack_Cash 3y ago
  The process of packaging the loans together is always the part that I don't understand. Better yet, I understand why one would do it but the process of how it happens, what are the criterias and finally how would the original underwriter go about selling the now packaged loans is still something I don't understand. Also what are the data that investors look at when they trade such instruments. For example with stocks one looks at earnings, balance sheets, moats etc. But with MBS what are the parameters? You can only know for sure by exploding the MBS and analyze the underlying loans one by one like that guy did in 2007/2008.
  - rahimnathwani 3y ago
    Disclaimer: my understanding below, but I don't work in the industry and haven't looked at this for a long time, so things might be wrong or have changed. SPV is created which owns the loans and issues the securities. Securities are issued with varying degrees of seniority. Each tranche is rates by a ratings agency (Fitch or whoever). SPV may enter into derivatives contracts to reduce some tail risks, because these allow more of the tranches to have higher ratings. Buyers are often restricted to buying above a certain rating. I don't think they do their own modelling of individual MBS.

CMBS (commercial mortgage-backed securities) are usually structured by banks, but held by: - Insurance Companies - Pension Funds - Mutual Funds - Hedge Funds - Real Estate Investment Trusts (REITs) - Sovereign Wealth Funds As the servicer, Wells Fargo will be figuring out how to repossess or whatever. CMBS are usually (always?) non-recourse, i.e. they're secured only on the property. So if the property is worth less than the amount of the loan, the owner is not on the hook for the shortfall.

lotsofpulp 3y ago
> Pension Funds This very often ends up being taxpayer funded defined benefit pensions, so at the end of the day, the loss is with future taxpayers.
JumpinJack_Cash 3y ago
The process of packaging the loans together is always the part that I don't understand. Better yet, I understand why one would do it but the process of how it happens, what are the criterias and finally how would the original underwriter go about selling the now packaged loans is still something I don't understand. Also what are the data that investors look at when they trade such instruments. For example with stocks one looks at earnings, balance sheets, moats etc. But with MBS what are the parameters? You can only know for sure by exploding the MBS and analyze the underlying loans one by one like that guy did in 2007/2008.
- rahimnathwani 3y ago
  Disclaimer: my understanding below, but I don't work in the industry and haven't looked at this for a long time, so things might be wrong or have changed. SPV is created which owns the loans and issues the securities. Securities are issued with varying degrees of seniority. Each tranche is rates by a ratings agency (Fitch or whoever). SPV may enter into derivatives contracts to reduce some tail risks, because these allow more of the tranches to have higher ratings. Buyers are often restricted to buying above a certain rating. I don't think they do their own modelling of individual MBS.