22 August 2006

Mortgage Backed=Junk

russwinter's Xanga Site: "I am keying on the notion that mortgage backed securities are generally junk issues, not investment grade. On August 16, I discussed this as it pertained to land valuations. The primary thesis to this notion is that the collateral backing this debt is fading. Although the claims of 'only' single digit gains has passed, of late the reported housing price data nationally and in key Bubble locales has been chiming in with generally flat year over year figures. In some locations the number have been actually down ' a bit'. Is this accurate?
I gleaned this WSJ.com article on this question. The key take away suggests that the reality is much worse than merely flat prices:
Moreover, there is some reason to believe the reality is even harsher than the numbers reflect. That is because when home sales begin to slow, sellers offer incentives that the official prices don’t reflect, such as help in paying buyers’ closing or moving costs. Also, as sales volumes in the worst local markets decline, a larger share of the recorded sales tend to come from markets that are still doing relatively well — a factor that can skew official prices upward.

The difference can be significant. Thomas Lawler, an economist and former vice president at Fannie Mae who has studied prices near his home in Loudoun County, Va., estimates that the average price of similar homes in July — accounting for concessions — was down 10% to 15% from a year earlier. The local realtors’ organization, he says, reported only a 2.5% drop. “There are a lot of people who would love to be able to sell their homes at last year’s price,” he says. “But they can’t.” "

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