I know this isn’t a big topic, but I don’t want to miss something this easy. Schweser Book 5, p. 127 FIG 1 When there are whole loan sales the assets are removed from the bank’s balance sheet (as opposed to securitization which recognize the assets on BS). At the bottom of the same page under LOS 59a it says that accounting differnces are a factor in US vs Europe. US whole loan products don’t have to be marked to market (M2M). This implies that Europe whole loan products do. Since the assets are off the banks balance sheet at sale the M2M accounting would only be adverse to the buyers of whole loans in Europe correct? The seller (banks) wouldn’t care at all… I just noticed they did say whole loan PRODUCTS (not the loans themselves), so I am assuming what I said above is correct.
I did not understand much of that too… so decided to move on http://www.analystforum.com/phorums/read.php?12,676224,676224#msg-676224
Thanks dinesh. I understand why in a whole loan sale the assets would be removed from the BS vs. staying on with the securitization. My question really lies with why the M2M accounting rules would affect the MBS markets in Europe. I think I am correct in saying the banks wouldn’t care, but the buys of the whole loans, who package the portfolio to make MBSs, would.