what does new home sales have to do with LUM? this co. just trades paper. Am I correct or not? In fact, I want to call the IR dept and ask them what will happen when housing buys slow drastically. It may have no effect on this co. Has anyone bothered to actually call and find out from investor relations?
Although I did not call IR, (that seems like asking the fox how many chickens are in the hen house), logic would dictate the following. If the number of housing starts has any effect on the profitability of this company it wouldbe because with a higher number of starts the market would have a greater number of loan packages available to trade and to some small measure it might be eiser to pick and choose the quality (ie. index of credit worth or credit score average) of a "package" of loans being traded. All of that goes to quality and not really to profitability wich is very much effected by the spread( ie. the fed rate to the 30). If you wish to model the quality of the loans in the market I would think the most critical element there is loan performance (ie. the forclosure rate and the refi rate). IMO Regardless of how many houses are sold today the margin(spread) is the one thing that has the greatest direct effect on profits, although more is better.
This has nothing to do with home sales. Its paper is govenment or agency guaranteed so there is no capital risk from that standpoint. All mortgages are GNMA, FNMA or FHLMC paper.
The risk is found when short term rates rise because they are highly leveraged purchasing "hybrid" mortgages, i.e, mortgages that are adjustable after some period of time from 1 - 5 years. These mortgage pools/securities are financed by repurchase agreements from 1 dsay to 360 days.
There is also dilution in the form of shares issued by the management. Alittle too liberal for me but not enough to dstray the potential for gain.