quick one: if some of the underlying mortgages of an mbs default… who does all the process, the issuer or the mbs holder? i mean, if there are defaults, how are they transferred to the mbs holder (and also the subsequent proceeds of a foreclosing procedure)? i guess the only way that the mbs holder is not exposed to this default risk is by buying mbs guaranteed by somebody (fannie and freddie after the bailout, i guess), but what about non-guaranteed mbs? thanks a lot
hala_madrid Wrote: ------------------------------------------------------- > quick one: if some of the underlying mortgages of > an mbs default… who does all the process, the > issuer or the mbs holder? > > i mean, if there are defaults, how are they > transferred to the mbs holder (and also the > subsequent proceeds of a foreclosing procedure)? > > i guess the only way that the mbs holder is not > exposed to this default risk is by buying mbs > guaranteed by somebody (fannie and freddie after > the bailout, i guess), but what about > non-guaranteed mbs? > > thanks a lot Foreclosures are handled by the servicer, who may or may not be the seller of the mortgages into the pool. Sometimes the seller is a bank, who has contracted a 3rd party servicer. Defaults are “transferred” first to the equity, eating into overcollateralization. Then they go up through the subordinate tranches. You are correct that the only way an MBS holder is exposed to default risk is by using guaranteed MBS. However, even a guarantee can have risk, as we have seen.
spierce Wrote: ------------------------------------------------------- > You are correct that the only way an MBS holder is > exposed to default risk is by using guaranteed > MBS. There’s a ‘not’ missing somewhere in there…
JoeyDVivre Wrote: ------------------------------------------------------- > spierce Wrote: > -------------------------------------------------- > ----- > > > You are correct that the only way an MBS holder > is > > exposed to default risk is by using guaranteed > > MBS. > > There’s a ‘not’ missing somewhere in there… Yes, thanks. Perhaps a Freudian slip, considering how much guarantees are worth these days.
Yep, at the end of the day no matter how much we squirm and wiggle if you lend money to someone, you might not get paid back.