Understanding Subprime and the US Housing Market

September 17, 2008 by reyna13
Filed under: Business & Economy, Career & Education, Equifax, Experian, Fannie Mae, Freddie Mac, Ginnie Mae, HUD, IndyMac, Jobs & Employment, Moody's, Mortgage-backed securities, Politics & Government, S&P, Subprime, Trans-Union, US Elections, US Housing Market 

TO THOSE OF YOU WHO LINKED THIS ENTRY ON YOUR FINANCIAL FORUMS: MANY THANKS. IF YOU ARE STILL HAVING SOME HARD TIME UNDERSTANDING SUBPRIMES, HERE IS MY SUBPRIME SUMMARY THAT YOU MIGHT WANT TO TAKE A LOOK AT.

My entry today will try to explain meltdown_aig.JPG and give you an understanding why events like this happens, especially with the fall of not only Lehman Brothers, Merrill Lynch, AIG but the previous big names like JP Morgan, Bear Stearns and even Freddie Mac and Fannie Mae, which were now taken over by the federal government. This is the only way to appreciate why everyone is rattled with the 500 points Wall Street meltdown yesterday.

There?s been so many bad news sa Wall Street if you?re one of those financial people na sinusundan ang story na to. There was JP Morgan, there was Bear Stearn and last week, the US government took over the management of Freddie Mac and Fannie Mae. Sino sila? These companies play a vital role sa US housing market, kasama ni Ginnie Mae. I will explain senyo kung sino sila.

Yesterday was big time again. It rattled everybody. It?s Lehman, Merrill Lynch (geez! I know a lot of people here pa naman) and AIG who was battered by subprime. Yeap, there?s the culprit again, Subprime.

So, if you are having some problems understanding Lehman, Merrill Lynch, AIG pati na ang mga naunang companies like JP Morgan, BNP Paribas and lenders like Washington Mutual, IndyMac at marami pang iba, you need to understand the basics of the US housing market. Dun tayo sa magsimula. Because if you don?t understand what?s at the bottom of this, you won?t have the appreciation ba?t nag-kakagulo sila sa Wall Street.

Let?s start with the basics.

1.) Prime and Credit Ratings

To non-financial people, para maintindihan what ?subprime? means is to understand what ?prime? is, sa lending business. Yon ang pinakamadali. Kaya sya tinawag na ?prime? because not only does one have the money to pay, the ability and the capacity to pay, but also the right attitude and the discipline to pay regularly backed up by a history of good payments. Why? It does not necessarily follow na porque mayaman ka, nag-babayad ka nang utang regularly. In the US, almost everything here is about credit. One must have a good credit history to have a good credit rating. Find out here how credit scores work.

2.) How does the credit ratings work and what does it mean?

It simply means, the higher your credit rating means, the lower interest rate you pay on credit cards, loans and mortgages. The lending business sa US rewards good borrowers and penalizes yong mga hindi nag-babayad or pumapaltos nang pagbayad nang utang. That?s why we have a lot of credit rating agencies. There?s Experian, Trans-union and Equifax. Ano ang counterpart nito sa Pilipinas? Honestly, I don?t know. I have not heard anything other than merong mga Credit Investigators na kakatukin ang kapitbahay ninyo. Korek?

3.) Investment Rating Agencies

Now, since I talked about credit ratings for borrowers, me credit ratings den na tinatawag sa mga investments, especially on bonds. Ang ni-re-rate nila are public companies. Public? Public companies means, yong mga stocks nila are being traded sa stock exchanges like the New York Stock Exchange. Traded? Traded means, binibenta sila sa Stock Exchanges. What are these rating agencies? They could be Moody?s or Standard & Poors or Fitch. Sa former office ko, we were being rated by Standard & Poors. Eto yong naririnig mong S&P 500, meaning the best 500 stocks na rated nang Standard & Poors.

4.) What are these ratings?

Since my former company was being rated by S&P, here?s what I know. Basically, ganito ang ratings nila.

1.) Investment Grade
a. Highest quality = AAA
b. High quality = AA+, AA, AA-
c. Strong payment capacity = A+, A, A-
d. Adequate payment capacity = BBB+, BBB, BBB-
2.) Speculative-Grade or Junk
a. Likely to fulfill obligations with ongoing uncertainty = BB+, BB, BB-
b. High-risk obligations = B+, B, B-

5.) Why are these ratings important to you as an investor?

Now, if you?re an investor, you want less risk sa investment mo and higher returns. So, if you are analyzing stocks na bibilhin mo, generally ang hinahanap nang mga tao are those of highest quality, AAA. You?d ask, me nag-i-invest ba sa mga Junk Bonds? You bet. Why? Normally, sa high-risk, higher den ang returns. Kaso, pag sumemplang, ubos capital mo. Baka utang ka pa.

6.) Why are these ratings important to you if you?re an investment firm/ house?

If you are selling investments, simple. Ang hahanapin nang mga investors mo are those stocks and bonds na investment grade. So, gagawa ka nang paraan to make sure that your company stays in the black. In the black? Meaning, yong financial results nang company mo is profitable. Ang ibig sabihin, apaw ang revenues mo sa expenses mo. If they say that your financial results are in the red, that means, lugi ang business mo. Kung continuous kang in the red, these ratings agency will ?downgrade? you. Downgrade? They will rate your investments lower. Effect? If your investors found out that your ratings were downgraded, eto yong nag-se-sell out sa Wall Street. Ibe-benta nila ang stocks and bonds that they?re holding na medyo pumapalya dahil nalulugi na sila or i-preempt ang mas malaki pang lugi if they continue to hold on to those stocks and bonds.

7.) In the red? In the black?

I?m talking about financial statements, in particular, the Income Statement or Results of Operations or Statement of Earnings, they?re all the same, iba-iba lang ang title bawat company minsan. One way to analyze an investment is to look at the Income Statement. You want to make sure na mas marami ang instances na kumikita ang company, ang tawag dyan is ?in the black?, pag lugi it?s called ?in the red?.

8.) Subprime

In short, eto yong mga borrowers na indi rated ?prime?, meaning, they don?t have the capacity, the ability and resources to pay. Worse, ang credit ratings nila is poor and lower than poor. Minsan, even those rated ?fair? are still subprime. Sila yong malaki ang chances na mabangkrap at indi makapagbayad nang utang. Getz?

So now, by this time, I hope you now understand what a ?prime? is, what a ?subprime? is, the importance of good credit ratings and the importance of credit histories sa lending business sa United States, especially in the mortgage lending business.

9.) Mortgage

What is mortgage? In its simplest terms, once na nakakabit ang real estate property mo (bahay, lupa or condo) sa loan mo, you call it mortgage. Nakakabit? Meaning? This means na once na nag-default ka or indi mo nabayaran ang bahay at lupa mo, the mortgage company or the bank takes ownership. Ibebenta nila para mabawi ang pinautang seyo. It could be a loss or gain sa part nila.

10.) Mortgage companies

In the Philippines, once you buy a house and lot, a condominium or land perhaps, either yong bangko ang magpapa-utang sayo or the developer itself which is called in-house financing. I guess, yon ang equivalent nang ?mortgage companies? sa United States. Although, there is a big difference. Why? The mortgage loans that are being produced by the banks dito sa US are being securitized. Do they securitize the in-house loans sa Pilipinas? I don?t know. Duda ko, they are all being re-invested sa mga bagong developments.

11.) Securitized? (or financial security instruments)

Pag sinabing ?securitized or securitization?, yong mortgage loans ay napunta na sa ibang mga investors dahil binenta na nila ang mga utang na yan. Binenta? Yes, allowed ka to sell these mortgage loans pero regulated sya nang SEC with the Securites Law na halos parehas sa Pilipinas. It?s all about ?present-value?. Gusto mo na kasing makuha ang cash flow sa mortgage na yun.

12.) Present-value?

If you?re a bank, a mortgage company or a lending entity, tapos meron kang mga mortgage notes worth $1 million, these are just paper money. Kelangan mo nang cold cash to run your business. Paper money is di pedeng pambayad nang koryente. These mortgage notes typically runs for let’s say, 30 years. Meaning, buwan-buwan, me kokolektahin ka and in the span of say, 15 years or 30 years. Now, let?s say ang mako-kolekta mo is $250,000 sa isang mortgage note. What they do, is sell the $250,000 that they will receive in total for 30 years for let?s say, $200,000 para naman merong kitain yong bumili. Yong $200,000 is the present value nung 30-year mortgage loans. Of course, if you want to go to technical details, mahabang kwentuhan, but basically, this it how it works.

13.) ARM and predatory lending

ARM is called the adjustable rate mortgage. Normally, they?d offer you a very cheap rate say 3% for 3 years, pag 4th year, iba na ang interest. Then, for more sweets, meron ka pang tax abatement for say, 3 to 5 years, depending on what county gave you the tax abatement. So, napakababa nang mortgage mo. A lot of people bought their new homes using ARM without realizing na after say, 3 years, the real interest rate kicked in and they saw their mortgage payment skyrocketed. Ano ang explanation nang karamihan sa mga agents? That you can apply for a home equity loan to lower your monthly payment. Probably to some it worked, however, sa karamihan, mas lalong nalulong sa utang. And with the home equity loan, more points and commission ang kinita nang mga fly-by-night lenders. Ang tawag dito is “predatory lending“.

14.) Ginnie Mae, Freddie Mac and Fannie Mae

Ginnie Mae is short for Government National Mortgage Association. This is an agency by HUD, which is the US Department of Housing and Urban Development. Anong drama nila? They buy home mortgages from banks para mag-karon nang pera ang bangko in turn, to lend money to future homeowners. Getz nyu ang cycle? Let?s review.

  1. The new homeowners applies for a mortgage either sa bank or sa independent mortgage company.
  2. The bank provides the mortgage sa homeowner, naka-collateral ang bahay.
  3. Sa dami nang mortgage notes nang bank, ibebenta ki Ginnie Mae, Freddie Mac and Fannie Mae and the lending merry-go-round starts again.

On the part of Ginnie Mae, what do they do with all these mortgage notes now? The next thing they do is bundle them, in say, $1 million then sell them to investors. Ang tawag na nito are Collateralized Debt Obligations or Mortgage-Backed Securities. Now, once they turn these mortgages into cash, balik na naman sila to buy new mortgages from the banks and the cycle continues. Those mortgages na binili nang investment companies will now be packaged into so called “Funds”, minsan nasama na sila sa mga Mutual Funds and are being accounted for separately. Those funds are the ones being rated by Moody’s and/or S&P. This is the very essence of the US housing market. Eto na yong basics of all the basics.

15.) And who are these Freddie Mac and Fannie Mae?

Freddie Mac is the Federal Home Loan Mortgage Corporation. Si Fannie Mae naman is the Federal National Mortgage Association. They are like Ginnie Mae. The difference? Si Ginnie Mae is an agency by HUD or the government. Si Freddie Mac and Fannie Mae, instead of being operated through HUD became independent and are now listed on NYSE (New York Stock Exchange), but they retain full government support. Now, last week, Freddie Mac and Fannie Mae were taken over by the government. Bakit? What else, subprime.

16.) So what happened along the santacruzan way?

What started as a very noble goal of helping American people achieve their American Dream to own a home, ended up with junk investments and bankcrupt companies. Why? It all started during the housing boom in the 80?s and continued when they were trying to jumpstart the economy after 9/11:

  1. There were a lot of fly-by-night mortgage companies who took opportunity of the housing boom. Nag-close nang nag-close nang mga mortgages without checking the credit ratings nang mga new homeowners. Even those who have some very bad credit records, nakabili nang bahay.
  2. Some of these mortgages carries a 1 or 2 or 3 points, which is a certain percentage nung selling price nang bahay. In essence, karamihan, komisyon na nila yun. So the more they try to close more mortgages especially using the so called ARM or adjustable rate mortgage by engaging in predatory lending.

Dahil napunta na ang mga mortgage notes sa bangko, eventually sold to investment companies, they packed this into so-called ?Funds? and as an investor, it will be hard for you to find out kung mortgage-backed securities sila.

Now, remember my discussion on 3- Investment Rating Agencies; 4-What are these ratings? and 6-Why are these ratings important to you if you?re an investment house? It was the more important for a company to stay in the black or be profitable. So what did they do? Maraming drama just to make sure that they stay in the black. (Refer to discussion number 7)

  1. There are those who inflated their revenues.
  2. There are those na indi bi-nook sa libro ang mga lease obligations para di ma-pick up ang expense
  3. There are those whose expenses were never booked or recorded at all especially yong issue about stock options.

Why do some companies resort to this? Simply because, karamihan sa kanila are public companies, me mga investors, these investments are rated by either Moody?s or S&P (refer to discussion number 3). All of them want their investments to be rated as investment grade (refer to discussion number 4). The problem is that, some of these investments were rated wrongly. Either with wrong information or kung ano pa man.

So now, you have a situation where, at the very bottom of all of these securities, me mga homeowners na bankrupt who could not pay their mortgages, therefore, walang principal na na-re-receive ang banks, therefore, wala ring principal na na-re-receive ang mga investors because everybody is holding on a mortgage note na walang bisa, dahil bangkrap na ang mga tao.

I hate that I?m putting politics here with what John McCain said yesterday. Kahapon while the Dow Jones was sliding. He said, ?Our economic fundamentals are strong!?. Binira ni Obama, ?What are you talking about?!? Nagising si McCain, nag-palit nang tono at sinabing, ?We are in a financial crisis today!?.

Gusto kung pag-umpugin ang dalwang to. And I guess, the reason why Obama lost his commanding lead ki McCain was that, he?s no longer talking and offering hope to Americans! Instead, parehas na silang nag-babatuhan nang mga kababuyan and until these two guys talk straight to the American people kung ano ang bold move nila to solve the economic problem that we are facing here, walang WORLD PEACE sa Wall Street. At sa bawat hatsing nang America, magkakasipon ang mundo. Pati kayong mga Filipino kasali sa hindi magandang santacruzan na to.

reynaelena_signature.JPG
P.S. I LOVE YOU

“I worked for two of the biggest broadcast investment firms here in the East Coast and my previous job was with the 4th largest housing authority in the United States, and my work deals with financial reporting, LIHTC, tax credits, equity and bond financing. That’s why I have an experience on what I have just written, that I would like to share you all. This entry is also for that MBA student in Manila who wrote me (kaso, I can’t find his email no more! Hehehe! My bad!) as well as for three (3) of my other close blogging friends.”

“Because the US Securities Law is very strict on people giving financial advice, this entry which is my personal understanding of the US housing market and how the mortgage and mortgage-backed securities work all the way from homeowners to Wall Street to investors, is by no means a financial advice. Do not ever attempt to dump your stocks just because you read Reynz entry or I’ll smack the shit out of you! If you were rattled or feel uneasy with the financial news coming from New York, please consult your Financial Advisor and your doctor. :-)”

Last but not the least, I invite you to read Salve Duplito’s blog Money Smarts to be in tune with financial issues going on in the Philippines.

More to come…

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Comments

59 Comments on Understanding Subprime and the US Housing Market

  1. chuvaness on Tue, 16th Sep 2008 9:34 pm

    2. ano nga ulet yung prime and subprime??? LOL

    *nosebleed*

    ‘daaay, in-house financing lang ang naintindihan ko hahahha. seriously, this is quite enlightening. kaya pala nagkalat ang paid opps about payday loans to help you pay your mortgages hahahahah

    chuvaness’s last blog post..Do you play World of Warcraft?

  2. Mahalia on Wed, 17th Sep 2008 1:22 am

    3. ala eh informative nga, napapanganga akong kababasa. dito ko nakita ang buong picture ng housing situation dito. ang pinakamasweswerte ay yung may cold cash na nakatago sa ilalim ng kama nila. katulad ng 94 years old kong kapitbahay. kaya he’s not out to buy a new house. nakakatawa yung credit rating na yan dahil nung una kaming nagka mortgage, di ako kasali dahil wala raw akong credit history. secret lang natin ito ha? nung nag ka credit rating na ako, nabawasan ng 5 points dahil nagpadala yung library ng credit collections dahil sa isang libro kong nalimutang ibalik…wah.

    Mahalia’s last blog post..Remnants of Ike Hit Massillon

  3. bluepanjeet on Wed, 17th Sep 2008 1:24 am

    4. wow bravo! Thank you so much for this lecture. Para na rin akong nag crash course sa eco. Magaling kang prof kapatid. Very concise yet clear and simple.

    So this is what my understanding of the gist of this mega post of yours:

    Bale ang umiikot pala sa economy ngayon ng US ay utang, worst utang na di nababayaran dahil sa mga mabababa ang credit ratings or people who have no capacity to pay–

    kumbaga sa isang mag pa-5-6, nagpautang sya ng nagpautang tapos lumabas lahat ng pera ngayon wala syang natirang kapital. lets say may kapital sya na 1000 pesos, then pinautang nya yun sa sampung tao, wala ngayon natira sa kanya. so dahil hindi nagbabayad yung sampung tao, humanap sya nang isa pang mag papa5-6 para ipasa bilhin sa kanya yung mga umutang sa kanya para magkaroon uli ng kapital. ngayon ito namang isa bibilhin nya ito sa kanaya ng may patong kasi may kikitain siya dahil sa interes dun sa 10 umutang. ang timano di na halos nagbayad yung sampung umutang kaya nabankrupt sya at abunado pa. then this cycle goes on hanggang sa lahat ng utang nung sampung tao ay pasa-pasa na hangang sa damay damay na na nagsimula lang ay dun sa sampung tao na di nagbayad.. tama ba ako?

    kung tama ako sa analogy ko, then now I understand the cycle, why its a big deal kasi if walang pera na pumapasok sa mga nagpautang, timano wala na sila capacity mag finance ng iba pang investment na sana ay magpapa lago ng economy.

    its a vicious cycke kumbaga.

    hmmm very interesting.

    dapat ikinukulong yung mga di nagbabayad na nsa grass roots level

    bluepanjeet’s last blog post..Survivor Philippines Episode 2: pretty girls are lazy! fat guys swear!

  4. dakilang islander on Wed, 17th Sep 2008 1:58 am

    5. ang galing pagka explain! napahanga ako…dapat ganito magexplain ang mga prof ko dati sa accounting di sana ako bumagsak! hehehh nagpapanic na ang amo namin dito sa isla sa nangyari dyan sa inyo!!! ayun sinimulan na ang cost cutting back to back na kung magprint para tipid sa papel kainis! heheh sana naman gumanda na ekonomiya nyo dyan para more american tourists dito at mas maraming datung…

    dakilang islander’s last blog post..My first experience as a pick up boy

  5. Malditang Pinay on Wed, 17th Sep 2008 2:12 am

    6. ang galing mo tlaga saludo ako i know a little about sub-prime basic lang pero dahil sa yo lumaki knowledge ko etchus! waaaaaaaa takot na tkot husband ko kasi pakonti na lang ng pakonti ang investment namin balak pa naman namin in 5 yrs time magpapagawa kami ng dream log house namin pero mukang di na mangyayari waaaaaa uy salamat pala din sa pagturo kay mahalia sa balay ko ha!

  6. pusa on Wed, 17th Sep 2008 2:29 am

    7. hang-galing, dapat talaga nag-guro ka na lang kahit barya barya ang sweldo hehehe

    pusa’s last blog post..the evolution of a cat

  7. reynz on Wed, 17th Sep 2008 2:34 am

    8. in essence, i think you got the point Blue. unahin ko yong last point mo about “ikulong”. what’s happening now is that, napaka-strict na nang lending business especially sa mortgage. ang mga bangko and mortgage companies now checks your credit histories and ratings, pati kamo employment before you could be approved for the mortgage. yun ang magandang nangyari. me mga nakulong? wala pa akong narinig, but several mortgage companies ang nagsarahan and were brought to court. ewan ko kung ano na ang nangyari.

    NEXT…

    Let me start sa taas - meaning let’s say bumili ka nang AIG stocks. Yong stocks nila are traded sa stock exchange, dun binebenta ang per share. Tumataas pag lumabas yong operating results nila na kumita sila. Bumabagsak pag lugi sila continously dahil ida-downgrade ang ratings nila.

    AIG have investment receivables. Dun sila kumikita. Investment income nila yun. Etong mga receivables na to are mostly galing sa tinawag kong mortgaged-backed securities, na galing sa bangko or Ginnie Mae or Freddie Mac or Fannie Mae, kung saan nila nabili. In other words, na-transfer lang actually sa kanila ang pag-kolekta nun.

    Now, at the bottom of all of these ay mga homeowners na indi na makabayad nang mga mortgage dahil, yung iba wala nang trabaho, yong iba an taas nang interest - so an nangyari nga di na makabayad. Sila ang tinatawag na subprime.

    Now, dahil indi na makabayad, wala nang pumapasok na collections dun sa libro nang AIG. Result? Bad debts. Billion billion ang ni-ra-write-off nang mga yan dahil wala nang pambayad ang mga homeowners dahil karamihan nag-file na nang bankruptcy.

    You’re right. Vicious cycle sya.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  8. reynz on Wed, 17th Sep 2008 2:35 am

    9. eh ayaw naman nang sanpits ko na bayaran ako nang mga lalaki dun eh, heheh pwede namang “payment in kinds” hahahaha

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  9. reynz on Wed, 17th Sep 2008 2:37 am

    10. hahaha baka buong north carolina bilhin mo! nakalimutan ko palang sabihin na regular ako dati dyan sa Raleigh, NC noon business trip.

    anyway, tinuro ko si Mahalia para me kakampi ka dahil iyak ka nang iyak pag binibira ko si lolo mo. hehehe!

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  10. reynz on Wed, 17th Sep 2008 2:40 am

    11. hehehe salamat! baunin ko to paghanap ko trabaho hahaha

    sabihin mo sa amo mo, calm down, indi pa katapusan nang mundo. natandaan mo Enron? Global Crossing? Tyco? Mas malala pa ang mga yon, although eto kasing subprime ang tinatamaan mga mahihirap na tao sa Estados Unidos kaya mas mainit, pero alam mo, yong economy dito will be ok. resilient naman sya.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  11. reynz on Wed, 17th Sep 2008 2:42 am

    12. salamat mahalia, dumating na pala kakampi mo hahaha buti nag-pang-abot kayo heheh!

    yong mga neighbors ko nga na italians, pucha, binili nila bahay nila cash! grrr! kairita! hahaha!

    at totoo kamo yang library books na di sinosoli, ikaw ba yong ininterview sa TV dun sa di binalik na libro? hahaha

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  12. reynz on Wed, 17th Sep 2008 2:44 am

    13. ganito yun ateng:

    Prime: $35 sa sponsored review

    counter bid sila, biglang naging $5 taz 300 words pa, subprime yun. hehehe

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  13. bluepanjeet on Wed, 17th Sep 2008 2:44 am

    14. Now i understand.

    I have another question or clarification, pag ba tumaas ang kita sa Stock exchange ibig sabihin ba nun mag nakubra sila o nakolekta sila na pera mula dito sa mga mortgages dahil nagbayad? Or may bumili ng shares nila na investor?

    Kung walang makukulong, pano na yun? I mean hahayaan na lang na utang yun?

    eh di ang parang nagyari yung mga fly by night agencies eh nagpapautang sa mga sub-prime na wala naman pala kapasidad magbayad kasi nga kahit may track record na bad credit history ay di na lang nila chineck at pinautang pa? tsk tsk bad business pag ka ganun. dead end yan. para kang namigay ng pera na walang man lang collateral

    bluepanjeet’s last blog post..Survivor Philippines Episode 2: pretty girls are lazy! fat guys swear!

  14. reynz on Wed, 17th Sep 2008 2:53 am

    15. Q: Kung walang makukulong, pano na yun? I mean hahayaan na lang na utang yun?

    A: indi ko na kasi nasundan kung ano na ang nangyari sa mga tarantadung mortgage companies na nagpautang nang nagpautang sa mga walang kapasidad magbayad. What I know is that me mga ongoing investigations sa kanila. Yung mga utang na indi mabayaran, yan na yong ni-ra-write-off, bale loss na yan nang mga investment companies, kaya nagbabagsakan ang Lehman, AIG at iba pa.

    Q: pag ba tumaas ang kita sa Stock exchange ibig sabihin ba nun mag nakubra sila o nakolekta sila na pera mula dito sa mga mortgages dahil nagbayad? Or may bumili ng shares nila na investor?

    A: I assume stocks ang ibig mong sabihin here instead of stock exchanges. Two things here:

    (1.) Kung investment house ka, yong bumili nang shares mo will be your investors. Para kang pina-utang. Gagamitin mo ngayon yung perang yun to buy more MBS. Babayaran mo ang investment na yan (or “utang”) through dividends or interest na galing sa mga receivables mo.

    (2.) Kung tumaas ang kita mo sa stocks - it could mean exactly what you said na nakolekta mo ang mga pera sa mortgages (or receivables) OR (and this is important) maliit lang ang expenses mo sa pag-manage nang investment funds na yun.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  15. bluepanjeet on Wed, 17th Sep 2008 3:04 am

    16. so tama nga prof.. nanggaling yung kita sa recivables na bayad sa utang.

    hahaha anak ng pitong puting pating, utang lang pala ang pinaka punot dulo ng issue na to haha.

    klarong klaro na sa akin ngayon. Two thumbs up sayo prof haha

    mag prof ka na lang. tama sabi ni Pusakay, kahit barya marami ka matutulungan dito sa pinas. Tumakbo ka ng VP dali, hahaha gayahin mo si Palin-kera LOL

    Kaya ang moral lesson dyan, kahit sa mga pinoy, WAG UMUTANG KUNG WALANG PAMBAYAD.

    anak ng tokwa, utang ng ilan, buong mundo nagsasakripisyo. pano na ang pinapangarap kong ferrari, 2 life size storm troopers, private jet, personal chopper, mansion sa beverly hills, exclusive audience sa playhoy mansion, condo sa NY at ang rest house sa malibu? hahaha

    48 year pa bago kami makarating dyan sa higpit ngayon ng employers dyan at dyaskeng embassy dito. di ko nga alam kung yung kontrata ko ay void na sa NY dahil sa economy plunge na yan LOL

    bluepanjeet’s last blog post..Survivor Philippines Episode 2: pretty girls are lazy! fat guys swear!

  16. reynz on Wed, 17th Sep 2008 3:21 am

    17. hahaha! balikan mo yong brief explanation ko sa tinatawag na “Present Value”. ganun exactly sya.

    1.) Yong worth $250,000 na mortgage note na pinirmahan nang homeowner andun na sa bangko.

    2.) Ibebenta nang bangko sa investment company nang $200,000 so ang kikita ang investment company nang $50,000

    3.) Receivables ngayon to nang investments companies.

    Kaya pag bangkarote ang homeowner, bad debts ang labas sa investment companies. Walang makokolekta, walang income ang mga investors nila. Yun na yung nangyari sa Wall Street.

    Getz na getz mo blue.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  17. Leo on Wed, 17th Sep 2008 5:26 am

    18. now i understand clearly.. yun pala ang puno’t dulo ng mga kaganapan ngayon dyan sa estet! btw, ni-link ko ‘tong post mo.

    Leo’s last blog post..How to Make Salted Eggs in Heated Clay Method

  18. Anonymous on Wed, 17th Sep 2008 7:40 am

    19. the clinton administration have seen this thats why he offered to have it refinance everything during his term but the people around was not happy about it so aun biglang may scandal after scandal…

    anyways based dun sa cnabi mo na some of the companies tend to have their financial statement afloat by not recording properly…and this has been happening since then…f one cud remember enron…this boils down to corruption

  19. reynz on Wed, 17th Sep 2008 10:25 am

    20. di ko na-getz yong 1st paragraph mo.

    but the 2nd paragraph was right in regards to having investment grade. ganun ang ginawa nang Enron. Enron was not subprime pala. Mina-nipulate nila ang income statement nila to stay in the black para mataas ang ratings nang stocks nila. that’s how they were able to stay afloat for many years.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  20. reynz on Wed, 17th Sep 2008 10:26 am

    21. thanks for the link at glad was able to help nang konti hahaha

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  21. Mahalia on Wed, 17th Sep 2008 11:04 am

    22. di ba walang debtor’s prison dito? pwede ka lang ikulong dahil sa fraud o tulad ni Martha Stewart na nakulong dahil sa contempt of court. pag-gusto ka talagang ikulong, hahanap sila ng mga kaso against you, hindi lang kasama yung pagkaka-utang mo. natutunan ko yan sa kapapanood lumang episodes ng Law and Order. hihihi

    Mahalia’s last blog post..Ang Mirinda at Ang Marginal Utility

  22. Mahalia on Wed, 17th Sep 2008 11:08 am

    23. ay oo, nagka-usap usap kami, i TP namin ang bahay mo dahil mag-kakampi na kami. Kaya lang mahal din ang toilet paper para isabit sa puno ninyo kaya hanggang say na lang ang pag-TP. :)
    marami kami sa asosasyong “Lumaban sa imperyalismong library” kaya di talaga ako nagsosoli. Pero nung naapektuhan na yung credit rating ko, nagtiwalag na ako sa asosasyon. hehehe

    dahil sa post mong ito, na-inspire tuloy akong sumulat ng mga ‘nonsense’ sa sulok ng mundo ko sa blogosphere. Salamat.

    Mahalia’s last blog post..Ang Mirinda at Ang Marginal Utility

  23. reynz on Wed, 17th Sep 2008 11:24 am

    24. naku ha? hahaha! me sakit ang lolang ADD at ADS pag mga ganyan puri, nilalagay ko yan sa kwadro hehehe!

    tawa ako nang tawa nung gurl na indi sinoli mga libro! ang bwisit na yung at ginawang Amazon ang kwarto nya hahaha

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  24. reynz on Wed, 17th Sep 2008 11:30 am

    25. hay naku! sa totoo lang noh? eh marami kasing me kasalanan dito sa mga kademonyohang to:

    1.) yong mga tarantadong mortgage companies na nagsulputan
    2.) yong mga loan originators na bira nang bira nang mga mortgage loans na walang pakealam kung me pambayad yung uutang na mga homeowners
    3.) yong mga homeowners na kahit walang pera, nakabili nang bahay at ibebenta nang mas mahal para kumita sa equity - marami dyan as a matter of fact, yung mga libro dyan na binebenta abour making profits sa real estate na $0 capital, dapat dun sa mga yon pinupugutan nang kwan
    4.) yong mga regulators na siguro nagtotong-its sa afghanistan instead na bantayan yong mga demonyong yan
    5.) tong mga ratings agency na puro daw investment grade wala namang analintek review na ginagawa at pasado dahil ang mga bossing nila, andun sa caribbean mistulang mga sirena
    6.) yong mga baliw na kompanya dyan na tinatago ang mga lugi, mga receivables na indi makokolekta andun pa sa mga assets nila

    madami sila day, hangga ngayon ata puro investigation! ang alam ko lang na nakulong yong mga Enronites hahaha!

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  25. The Ca t on Wed, 17th Sep 2008 12:00 pm

    26. kausap ko lang kahapon yong isa kong kaibigan ang she was planning to buy her second house. bigla siyang urong-she’s now being required to make a 20 per cent down payment.

    gusto kong makita yong mayayabang na wala namang karapatang bumili ng bahay noon sa SF pero nagrant ang housing loan dahil pinalabas na meron silang homebased business tapos ginawa pang equity owner yong isang kapatid na malaki nga ang kita, baon naman sa utang.
    Party every week para maipakita ang bahay nila sa mga kaibigan. ngayon para silang basang sisiw. Foreclosed ang mga bahay.

    The Ca t’s last blog post..Veggies and Beer Shrink the Brain-Scientists say

  26. The Ca t on Wed, 17th Sep 2008 12:08 pm

    27. As always, these corporate giants have all the means to window dress their financial statements to orotect their EPS in the stock market.

    When you apply in investment companies, banks and mortgage companies,some of these people prefer that you have worked in Fannie Mae, in Scwhab…blah blah because if you did, it means you are good.

    Oh yeah, they’re good in hiding the true condition of their financial position.

    some corporations even hint this in the interview as to how you are going to handle problems that may put the company in a bad financial picture. Tipong anong gaawin mo,,,hypothetical questions.

    it ony boils down to greed theory. hindi lang ang mga pinoys ang corrupt, sa states mas malaki ang fraud (private companies corruption) na nakakashake ng wall street at ng world economy.

    The Ca t’s last blog post..Veggies and Beer Shrink the Brain-Scientists say

  27. reynz on Wed, 17th Sep 2008 12:14 pm

    28. hahaha typical attitude you know! pa-social climb in a wrong way! i know someone (pinoy) dito na tinamaan nang sub-prime and exactly ganun ang ginawa hehehe, incidentally, follow up ko ang entry ko with home equity dahil me email saken asking me to explain ang relationship nang equity sa subprime!

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  28. reynz on Wed, 17th Sep 2008 12:18 pm

    29. naku sinabi mo, kaya ang role nang mga CFO ngayon is extremely difficult na, now they have to sign certifications sa bagong ruling na 404 and pag pumalpak FS mo, chugi ka rin and we have read so many CFO’s na nadale nito! susko hope di ko madaaanan to hehehe

    bottom line, it’s really greed. ganun sa Enron, ganun sa Global Crossing, Tyco and everybody. taguan nang mga expenses, puro accrue nang mga hindi naman totoong liabilities and everything for one, para maliit ang tax liabilities and to the other para consistent ang earnings.

    reynz’s last blog post..Understanding Subprime and the US Housing Market

  29. nonoy on Wed, 17th Sep 2008 3:52 pm

    30. with that said. bakit kaya ni wala man lang makukulong?
    basing on the fact that most of these companies had fooled the raters by providing false info!? makulong sana yung mga swapang!!!
    im not into politics either but i am for obama. what mccain had mentioned for stricter regulations and so on it against the current administration (republican) philosophy. i don’t think he can to that without going against the republicans.

  30. reynz on Wed, 17th Sep 2008 9:49 pm

    31. What a lot of people doesn?t know, especially the ones who are not following the financial news, the FBI, the SEC and other state prosecutors (especially New York who has had a lot of high-profile corporate cases brought to court) have actually been at the forefront of opening criminal investigation of more than a dozen corporations for possible accounting fraud and other financial crimes related to the subprime lending crisis.

    I mean, this AIG, Merrill Lynch and Lehman Brothers drama at the Wall Street did not just happen by accident. SEC and FBI were responsible for uncovering all these since they were actually looking at all those involved, including investment bank and other entities that bundled the loans and sold them to other institutions and investors. This probe included housing developers and Wall Street firms.

    Remember the SEC probe which included the Swiss bank UBS AG. I think we all know what happened to that Swiss bank. The latest is that Sen. Levin wants their US operations shut down (http://abcnews.go.com/Blotter/story?id=5394214). Morgan Stanley, Merrill Lynch, Bear Stearns, and even MBIA were also under the SEC radar. We all know what happened to Bear Stearns and Merrill Lynch.

    If those Enron executives served their times for all the criminal wrongdoing they did, I’m sure it’s only a matter of time before these responsible people gets the cuffs.

    reynz’s last blog post..How home equity and home equity loan works

  31. The Ca t on Wed, 17th Sep 2008 11:12 pm

    32. tama ka diyan reynz. hindi kagaya sa pinas na nauuna pa ang mga investigation ng media kaya circus ang labas, papogi points pagkatapos wala namang nakukulong. dito tahimik ang imbestigasyon to protect the innocent tapos paglabas ng resulta, malalaking isda ang huli.

    marami na namang white collar criminals ang pupunta sa preso nito.

    The Ca t’s last blog post..Karaoke Moments and America?s Got Talent

  32. reynz on Thu, 18th Sep 2008 12:03 am

    33. meron cat! hahaha! merong nakukulong! kaya lang, piktapos ikulong, palalayain hahaha! ~wink~ ~wink~ hulaan kung sino! hahaha!

    na-alala ko tuloy yung papogi points na yan walang ginawa ang mga politiko puro lang papogi points for them kahit na anong gawin. typical yong pag me project na ginagawa, nakabalandra ang mga mukha sa kalye sa announcement. pucha! akala mo, utang na loob nang bayan dahil ginagawa ang kalye hahaha eh pera nang bayan un, tipong lumalabas, pera nila! hahaha!

  33. Alain on Thu, 18th Sep 2008 1:03 am

    34. Down to earth na explanation… ilearned a lot. Kaya pala magulo e dahil ang daming opportunista, other than that mga tiwaling gov’t regulators and revenue collectors sa business na eto. Yung halos ng mga Filipinos din e ang tanga pag dating sa financial education kahit sabihin mo pang professional by title.

  34. reynz on Thu, 18th Sep 2008 1:18 am

    35. naku salamat alain sa mga papuri hahaha!

    i do try to make my explanations a lot easier para maintindihan. what good is my blog kung well written in english taz wala namang maka-intindi. and the reason why i do this na hinalong tagalog is because almost 80% nang readers ko are from the Philippines considering na andito ako sa US. i care about my readers, gusto ko maintindihan nila ako.

    i’m glad i can help in any way.

  35. edzmaya on Thu, 18th Sep 2008 3:42 am

    36. hay, salamat at naliwanagan din ako.
    para akong nabunutan ng tinik ng bangus sa lalamunan. :-D
    vicious cycle nga. i swear, i mean, bakit ako bibili ng utang? utang na nga bibilhin ko pa? kaya nagkagulo eh.. tsk tsk tsk…

    edzmaya’s last blog post..I?m Tim Tam Slammin?

  36. TonGuE-tWisTeD on Thu, 18th Sep 2008 3:58 am

    37. Awesome post. Mas marami ng makakaintindi ng puno’t dulo ng subprime meltdown. Pati ako maraming napulot.

    But if I may add, the bank execs and fund managers, were consistently drawing huge bonuses despite the sounding of the alarms by regulatory ang monitoring agencies, both US and International like IMF and WB, as early as two years ago.

    I guess that was part of the window-dressing, to make it look like everything’s normal. The ratings agencies like Moody’s, Fitch, and S&P didn’t help either but in fact aggravated the situation that while they kept the ratings steady the disease had spread quickly across the globe. Most investors especially here in Asia look to these ratings as their bible. How would our own bank execs here now feel, if they find out that their advisers/consultants, for example Lehman and Merill Lynch, had not been totally honest with them? Would anyone still trust the wiseguys in Wall Street after this gi-mongous debacle?

    That, to me, is the worst thing this fiasco has ever produced. Banks elsewhere would surely be wiser after this major screw-up and it will definitely take a long time before the same confidence is regained and that won’t help the system get out of the shithole it is now in. Sure, the big boys in Ayala Ave. can write it off and charge it to experience, but when the account runs into billions, there will be a lot of sleepless nights, shattered egos, credentials trashed, and high-paying jobs lost. And if you don’t know the Pinoys yet, they will be pointing the blaming finger everywhere else but them while whispering to themselves, “lintik lang ang walang ganti”. As if may magagawa.

    The credit being made available to AIG is but a short-term solution, a finger in the dike. As you said, it may only delay the inevitable but to this day there is still one question that remains unanswered even by the best gurus you can find, that is, “What’s next?”

    TonGuE-tWisTeD’s last blog post..It’s a Moro-Moro, you Morons!

  37. TonGuE-tWisTeD on Thu, 18th Sep 2008 4:03 am

    38. I forgot, manay reynz, I was going to tell you that Salve of MoneySmart in Inquirer blogs linked this thread to her post.

    Kamfai! For the education of the Filifinos in their Beauty Farlors!

    TonGuE-tWisTeD’s last blog post..It’s a Moro-Moro, you Morons!

  38. kengkay on Thu, 18th Sep 2008 8:40 am

    39. hay, pinagtiyagaan kong basahin kahit na nakakahilo. pero at least ang AIG na tulungan ng gobyerno di ba? ayan na nga ang sinasabi ni kengkoy e, sa US daw kasi ang daming credit at ang daling ma-aprub. dito kasi, bancrupcy and how to resolve it ang handle nya sa mga bangko, nakakabaliw daw ang processing dito unlike in the US.

    kengkay’s last blog post..luksong lubid atbp

  39. reynz on Thu, 18th Sep 2008 11:09 am

    40. hi edzmaya,

    well, ganun actually nag-wo-work ang mga tinatawag na financial instruments dahil sa totoo lang - lahat nang mga pinapasa pasa na mga “investments” na yan are really promissory notes kung iisipin mo.

    kumikita kasi ang investment houses dyan sa interest na binabayad mo at gusto nila siempre unti unti mong bayaran ang utang mo para matagal at mas marami kang interest na ibabayad. kaya kung me mortgage ka or notes, me penalty pa kamo pag nag-prepay ka or binayaran mo bago mag-mature.

    salamat sa pagdaan and glad i was able to help.

    reynz’s last blog post..How home equity and home equity loan works

  40. reynz on Thu, 18th Sep 2008 11:17 am

    41. TonGuE-tWisTeD,

    bullseye! tinamaan mo! tumpak ang sinabi mo dun sa bonuses and ratings.

    at the bottom nang mga lintek na securities na to are notes or invetment receivables na indi na makokolekta pero guess what, indi nila ina-alis sa Balance Sheet nila dahil tini-trade pa nila sa stock exchange at dahil each of these have their own funds na mina-manage, nag-do-draw sila nang mga bonuses dun!

    eto namang mga tarantadong ratings agencies, phone interview ang karamihan dyan dati. sa office namen, lately lang sila PHYSICALLY pumunta sa office at talagang mistulang auditor na chinek ang financial statements namen. S&P rated us AA- which bago dumating ang lola mo dati syang BB- at talagang nilagare ko ang kompanya namen noh.

    merong good thing na lalabas sa mga nangyayari na to and hopefully, i could write something up.

    reynz’s last blog post..How home equity and home equity loan works

  41. reynz on Thu, 18th Sep 2008 11:22 am

    42. Yeah thank you for the info, nakita ko nga! hahaha! kaya pala bumabaha ako nang bisita at na-shock ako sa mga IP addresses nang mga to hahaha mga well-known offices sa Makati at schools hehehe!

    Wala bang nanga-nga-ilangan nang professor dyan sa economics? financial markets? hahaha! unemployed ang lola!!! hahaha!

    Hahaha! eto nga pati yong kebigan kong mega-cut nang hair ko nag-sasalita na rin nang Wall Street language hehe sinisisi ako dahil di na raw sya maintindihan nang mga customers nya hahaha

    reynz’s last blog post..How home equity and home equity loan works

  42. reynz on Thu, 18th Sep 2008 11:25 am

    43. actually, marami nang pinag-bago ateng pagdating sa loan application at morgage application pati na kung magbubukas ka nang bagong mortgage company. indi na sya gaya nang dati na bukas ka nang company ngayong araw, isarado mo nang gabi dahil nakatipak ka na sa kawawang homeowner.

    eto namang bail-out sa AIG, naku me problema ako dyan hahaha! as in $85billion! haller! pambili namen nang arinola, cortal, at pampala nang snow. Imbes na mapupunta sa social services namen, ayun, sinaklolohan ang mga demonyo sa Wall Street! Ateng na-save nga ang mundo pero mukhang me hindi tumpak sa ginagawa nila! Nakkuuu! lagot sila sa entry na gagawin ni BatGurl! hahaha!

    reynz’s last blog post..How home equity and home equity loan works

  43. The Ca t on Thu, 18th Sep 2008 1:14 pm

    44. tama ka diyan reyna,apektdo ang mga social services lalo ng mga baby boomers. Baka pagdating sa atin pati band-aid, hindi pa sasagutin ng medicare. at baka ang pension natin ay para pambili na lang ng sandwich.

    ang mga hinayupak na fly-by-night mortgage companies na yan ang nagbenta sa maraming mga Non-english speaking homebuyers.
    pirma lang ng pirma, tuwang tuwa na maybahay sila tapos nagtaka bakit sinipa sila. hahaha

    in relation doon sa social services, alam mo bang apektado rin ang mga nagpepetion ng mga parents sa Pilipinas na ang edad ay mahigit na 65. Kasi ayaw na rin nilang magprovide ng social services in the form of medicaid sa mga taong walang contribution sa SSS.

    Pahirapan na.

    The Ca t’s last blog post..Intellectual Thinking Makes You a Pig- Study

  44. adz on Thu, 18th Sep 2008 2:00 pm

    45. May exam ba ito pagkatapos magbasa?

    pa check up ako bukas kasi parang naubusan ako ng dugo…hahahah

    Galing mo talaga reyna… pwede ka talagang maging maestro! ai maestra diay…heheheh

    adz’s last blog post..Free on-line marketing training at Sitesource101.com

  45. reynz on Thu, 18th Sep 2008 2:09 pm

    46. daz rights! eh di ba nga ang ginawa naman nitong mga engot na yes yes yes sa kongreso eh inusog nang inusog ang retirement age? nung marami na silang nadekwat na pera sa federal reserve, pati pension gusto nang touchy touchy, result? inabante ang retirement age sa 67! halller! eh baka pag retire ko, inabate na naman sa OTSENTA OTSO! ano pang makokolekta ko sa pension ko??? waaaaa!!!

  46. reynz on Thu, 18th Sep 2008 2:10 pm

    47. hey adz! naku tamang tama! hahaha! nasa accounting firm ka di ba? o ayan, pag-aralan at talagang iche-check kita hahaha

  47. jo leano-pikal on Fri, 19th Sep 2008 3:40 am

    48. marhay na aga po. magagayun ang blog mo po?feeling ko matali na ako after mabasa ang mga subprime ek ek chuva sa blog mo. ipagpatuloy po?.

  48. reynz on Fri, 19th Sep 2008 3:45 am

    49. aw lintian! hahaha! haloyon na akong toroik igdi sa harong ko, harain na daw so mga daragang magayon ta dai man lang mag-ka parangkog igdio! maray man tabi ta napadpad ka sa harong ko! hahaha! salamatonon sa pag-agi!

    reynz’s last blog post..Music?s midas touch: David Foster

  49. Joe Dat on Sun, 21st Sep 2008 12:12 pm

    50. Excellent explanation of a very difficult subject.

    Do you know how much obligation the Seller has for every $1 million of CDO (collateralized debt obligation)? For example, why did Countrywide fall when in fact it sold most of it’s mortgages to investors??

    One would think that a seller (like Countrywide) would have the better of it once it has unloaded the bad mortgages to investors. And didn’t Coountrywide cover its risk by buying ‘insurance’ (did AIG fall because it functioned ala MBIA by guaranteeing the mortgages)?

    Thanks for your response.

  50. reynz on Sun, 21st Sep 2008 3:27 pm

    51. Hi Joe Dat,

    Thanks for the nice compliments. I believe there’s 2 street in there. For those CDO’s sold to private labels, there are still instances wherein the seller is responsible to collect those receivables and pay the investor their interest. For those CDO’s that meets the govt criterias going to GSE’s, I believe responsibility now falls to the GSE’s that’s why Fannie Mae and Freddie Mac themselves got into trouble for the same thing.

    Quite an excellent question on your part. One would think that the seller (Countrywide) has now unloaded it’s bad mortgages that its now with the investor and so therefore, they’re now free of subprimes is not really what’s happening. But that was good. Now, let me explain.

    Countrywide kasi, just like any other mortgage lenders, rely on secondary markets to have more funds and that?s what they do, either sell the packaged mortgage, raise more capital by trading their stocks on the stock exchanges or borrow more money to make more loans. This is where Freddie Mac, Fannie Mae and Ginnie Mac becomes very important in the housing market cycle.

    Now, not all of these mortgages generated by Countrywide are being bought by these government supported entities. Only the so-called ?conforming loans? (read: those that meets internal bank and/or GSE?s criterias) are bought by Fannie Mae and Freddie Mac. So the rest of the mortgage that are not bought by those entities goes into some private labels or they do it on their own.

    As subprime mortgages started going delinquent and defaulting given that interest rates started to rise (so many factors that put pressures on interest) and the market started tightening it?s credits, the more the defaulting went at a much faster rates. Result, analysts started to downgrade Countywide, interestingly by Merrill Lynch, because of the rapid deterioration of the credit market. That?s when Countrywide got hit by liquidity problems. The next thing you knew they borrowed $11.5 billion from a group of about 40 banks to fund loans and the whole thing unraveled.

    Hope I was able to help.

    reynz’s last blog post..Palin?s fire is goner while Obama sizzles back and on fire!

  51. Ellen on Sun, 5th Oct 2008 12:24 pm

    52. Haaay, na -educate ako. Thank you. I used a portion of your article for my column. Thanks, again.

    Ellen’s last blog post..No dial tone

  52. reyna elena on Sun, 5th Oct 2008 1:00 pm

    53. i’d take that as a great pride Tita Ellen! hahaha! many, many thanks ever!

    reyna elena’s last blog post..What does it mean to be ?presidential? or in Manila, ?presidentiable??

  53. yer on Mon, 6th Oct 2008 11:11 am

    54. Thanks for the explanation. I watching CNN daily but quite naive on the terms they used specially subprime. I got your blog thru the column of Ellen Torsedillas of Malaya mentioning about the present santacruzan as you’d say.

    Hey, please tell me where I’m lost. You said that bank or mortgage companies sell the homeowner’s mortgage to Ginnie Mae, Freddie Mac or Fannie Mae then to investment companies for the purpose of having real cash to circulate the process. So I presume that the one’s that should be bankcrupt are the investment companies and not the bank, motgage companies, Ginnie Mae, Freddie Mac or Fannie Mae.

  54. reynz on Mon, 6th Oct 2008 11:27 am

    55. hey, yer, thanks for visiting.

    you have the same question as that of Joe Dat, kindly read the question on the comment and my response.

    it’s a cycle kasi.

    1.) the bank lends the money to customers aka homeowners.
    so wala nang pera ang bangko (or at least kulang na) and all they have are mortgage notes.
    2.) these mortgage notes (not all, kasi me mga tinatawag na conforming loans and non-conforming ones) are sold to Ginnie Mae, Freddie Mac or Fannie Mae o kaya sa investment houses.
    3.) Once turned into cash - pautang uli. balik sa number 1.

    Kung sino ang holder nang tinatawag na MBS na indi na makolekta yun ang mga nabangrap.

    Now, there’s another twist sa bankcruptcy na to which i will discuss in my next entry. It’s called CDS (credit default swap) I am trying to find a way na ma-explain in very simpler terms because isa to sa nag-pabagsak sa Lehman, AIG at yang mga sikat na investments houses.

    Meanwhile, I leave for DC today and won’t be able to answer comment until later in the evening EST. Thanks again.

    reynz’s last blog post..Bomba star na ang lola nyo!

  55. roy on Thu, 9th Oct 2008 5:23 pm

    56. i found your link from ellen tordesillas. i’m glad she picked up your entry because like her, i think i fully understand the whole thing now. you should be commended for writing such a very technical and highly difficult wall street issue and break it down that can be understood like ordinary non-financial people like me. i’m in northern jersey who read business news but still can’t connect the dots. i think i learned a lot from you.

  56. Franz Dagohoy on Wed, 10th Dec 2008 5:45 am

    57. wow, very informative! and your P.S. assured your readers that you know what you are talking and it’s not coming from some crappy websites out there.

    Franz Dagohoy´s last blog post..Mag-Aso Falls in Antequera

  57. Forever Bride on Wed, 10th Dec 2008 5:47 am

    58. ang haba ng explanation pero sobrang linaw…at least ngayon, nde na ako tatanga-tanga kapag may nag-uusap tungkol diyan. maraming salamat po sa reyna.

    Forever Bride´s last blog post..Wedding Etiquette Tips

  58. 2008: reyna elena dot com: year in review | reyna elena dot com on Mon, 29th Dec 2008 2:23 pm

    59. [...] ang krisis pinansyal, inikspleyn ko ang drama chorva sa Understanding Subprime and the US Housing Market tuloy, naging bomba star na ang lola nyo! Hindi lang ako, pati na si Kengkay, si Buraot, at si [...]

  59. In Moscow, Igor Panarin's Forecasts Are All the Rage; America | reyna elena dot com on Tue, 6th Jan 2009 5:12 am

    60. [...] won’t go into a Wall Street explanation here like the one that I did with my subprime entry. If you think this is difficult to understand, you’d be surprised. You actually know this very [...]

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