Posted by Virginia Doyle on 9/23/08 5:32pm
Msg #265093

Who invented bundling anyway?

Does anyone know if the investment tool of bundling mortgages was a political move or a Wall Street move?

Reply by Becca_FL on 9/23/08 7:43pm
Msg #265113

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/30/AR2008053002568_pf.html

Reply by JanetK_CA on 9/24/08 1:21am
Msg #265123

Very interesting article, Becca. Thanks for posting.

Reply by Glenn Strickler on 9/24/08 12:30am
Msg #265120

I have been investing on my own money since the 70s, and mortgage-backed securities were around then.

Reply by DianeCipa on 9/24/08 6:49am
Msg #265124

Agreed, Glenn. I started in the business in the 70s. Most conventional lending was done by banks and S & Ls for their own portfolio. If they needed paper, they reduced rates. If they didn't need it, they raised rates. It wasn't a steady flow of money. There was regular buying and selling of whole loans and partial loans in packages privately between institutions. FHA and VA loans were the core of most mortgage pooling into securities thru Ginnie Mae. That kind of paper is tried and true. The push into conventional security pools with paper backed by Fannie Mae and Freddie Mac followed the S & L crisis.

If they had stayed with straight security sales, I think we'd have been okay, but someone got the bright idea to strip the securities into traunches to spread risk. This risk manipulation seemed pretty cool at the time. I was happy I even understood what they were saying. LOL Anyway, it changed the way lenders and investors looked at risk and gave them a tool that made them think they could ignore quality underwriting....and you know the rest of the story.

Reply by sue_pa on 9/24/08 7:29am
Msg #265127

...Most conventional lending was done by banks and S & Ls for their own portfolio....

A little later when the mortgage business began to change, local lenders offered a program where borrowers could take a higher interest rate - 1/8 or 1/4 (can't remember) so their loan was retained in house and not sold - EVERYONE took the higher rate.

Reply by Michael Byrne on 9/24/08 9:07am
Msg #265134

Liars Poker, by Michael Lewis is a great read about the MBS explosion in the 80's/90's, led by Louis Ranieri. Michael Lewis also wrote Blindside and Moneyball- if you enjoy the financial side of sports as well.