Newsletter - September 2015
There was recently a very interesting mortgage-bond deal announced by Dallas, Texas-based private equity firm Lone Star. And if you haven’t read Jody Shenn’s illuminating analysis of the deal, allow us to summarize: Lone Star packaged 220 mortgages and created a $72 million bond offering
Of course, that doesn’t seem like a very big deal, does it? And it wouldn’t be, except that the loans used to back the securities were exclusively of the post-2009 variety – and in none of them did the government assume any default risk. In other words, this is the first time since the recession that a bond offering has been backed by comparatively riskier loans without the government’s involvement.
This is fascinating for a number of reasons (some purely academic and some not-so-much). First off, this is a strategy that has been kicked around for a while by various firms, but no one had yet taken the plunge. So that makes it interesting. Second, because it was a first, we now get to see how the market reacts to it. And that makes it interesting. But most of all... this hearkens back to the strategies employed that LED to the recession in the first place – and that certainly makes it interesting AND a little unsettling.
While the deal is intriguing enough in a vacuum, now let’s set the backdrop before which this drama is unfolding: a steadily improving housing market and economy. Corelogic’s June 2015 National Foreclosure Report finds that foreclosure inventory has dropped year-over-year for the 44th consecutive month. So it’s not as though this move is a desperate measure called for at a desperate time.
So if the trend of foreclosures is going down and the real estate market is slowly improving, why make risky moves like Lone Star is making? The economy is still soft and volatile, as we saw on “Black Monday” last week. A correction in the stock market was long overdue and that may have merely been a foretaste. The FED now looks unlikely to raise interest rates soon, but they were on that course before the dip. If rates do go up, it could have an adverse effect on the borrowers backing these securities, even though they are marginally safer than those that led to the 2008 crash.
Bottom Line: Uncertainly abounds in a market that is apparently being read very differently by very different experts and professionals. Some are reading safety into the recovery, while others batten the hatches and await recoil.
One of the only things we can be sure about is that everyone in the financial industry needs to be prepared to produce a crystal clear paper trail for every move they make. And on that front, Blue Streak Docs can help. If you haven’t worked with us yet, you can try us out and get your 5th order FREE!
Employee Of The Month
It is so fitting that James DeFillippo won the Employee of the Month Contest in July. He works from sun up to sun down every day, including any available hours on the weekend. He blows away any quota he is given and more often than not, makes his own personal quotas even higher. He does anything he is asked to do and can turn on a dime switching from Document Retrieval orders to Title Searches and back again. James is without a doubt a great asset to Blue Streak Docs and we are so lucky to have him.