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"this is no small thing. you in effect take control of the "middle" by kicking out those which were not done to your standards."You can only kick out so many loans before your bid won't be considered. So its about risk budgeting rather than assembling the very nicest possible loan pool. Also, this doesn't protect you from adverse development on the loans still in the pool. "i often wonder why MBS was kept. "Large performing multifamily loans, property survey would have shown the properties in good shape/well occupied at the time.It's only later than MBS ran off with the maintainance funds and the whole thing went to pot. Also JRT probably took a much smaller loss on its exposure than others. "i'm interested to know why you put the total blow up of their CDOs as reasonably probable."Because it is. http://biz.yahoo.com/bw/080425/20080425005788.htmlhttp://biz.yahoo.com/bw/080423/20080423006160.html?.v=1Note reasonably probable, ~15% or so. " greater than that but the other assets are worth more than 50MM."My concern would be a phantom income death spiral.