Mortgage consultant » credit

THE SPECULATOR

admin — Mon, 04 Jul 2011 18:07:05 +0000

If the idea of currency hedging is controversial to some, then that of currency speculation is even more so. Currency speculation — that is the trading of currencies with no underlying, attached asset — makes up the vast majority of currency market flow. Given that the currency market provides the liquidity for global trade and investment, it is therefore currency speculation that is providing this liquidity. When looking at the issue of currency speculation, one should immediately dispense with such descriptions of it being a “good” or a “bad” influence and instead focus on what it provides. It is neither a benign nor a malign force. Rather, its sole purpose is to make money. Furthermore, it does not act in a vacuum, but instead represents the market’s response to perceived fundamental changes. Thus, it is a symptom rather than the disease itself, which is usually bad economic policy.
Currency speculators are usually made up of one of three groups — interbank dealers, proprietary dealers, or hedge or total return funds. However, at times, currency overlay managers or corporate Treasurers can also be termed currency speculators if they take positions in the currency markets which have no underlying attached asset.

Auto loans

admin — Thu, 29 Jul 2010 11:29:29 +0000

Auto loan credit characteristics fall somewhere between those of mortgages and credit cards. They are secured but on a depreciating asset and are relatively short-term loans. Data on default rates is reasonably accessible where auto loan securitization issues are common.The main risk to all lenders comes from changes in tax policies that have a direct impact on the value of new and second-hand cars and a particular concentration on a particular class of vehicle or type of customer.
If a government acts to reduce taxes or import tariffs on new cars this will at a stroke lower the value of recently bought second-hand cars and the price of new cars. In cases where the reductions are extreme some people who have bought their vehicle on credit may simply return the keys for their original purchase and buy a new car.
Some lenders specialize in lending to taxi drivers or owner–drivers of coaches or trucks. The number of taxi licenses is frequently restricted and it is not uncommon for the cost of the license to be considerably more than the cost of the taxi itself. An increase in the number of licenses issued, a downturn in business or relaxation of licensing requirements will all have a negative impact on the value of the licenses and hence the lender’s collateral.

Mortgage characteristics

admin — Thu, 09 Jul 2009 11:27:21 +0000

Home mortgages are a relatively homogeneous product with the major difference being between fixed rate mortgages and those that are floating rate. Historical default rates across the world have generally been among the lowest of any asset class. There are a number of qualitative reasons why this is the case. Owner–occupiers have to live somewhere and their choice is usually between paying rent or making the mortgage payments; mortgages have a form of long-term option on property prices and given their typical term have significant time value. Mortgagors do not default simply because they have negative equity and this option is out-of-the-money. The personal consequences of defaulting on a mortgage are extreme and mortgagors will usually default only in extreme circumstances.
For default rates to rise sharply from their very low “normal” levels usually requires some combination of falling property prices, rising unemployment, falling wages and in the case of floating rate loans higher interest rates.
There are a few examples where mortgage default rates have soared and in recent years these have occurred in countries where there has been a form of managed foreign exchange system that has subsequently collapsed. Mortgagors who took out “cheaper” foreign currency loans found that the value and servicing costs of their loan in local currency terms shot up. Other factors such as falling property prices and higher unemployment also occurred in these cases but were of secondary importance.
In countries where mortgage securitization issues are common there is a wealth of data available on both default and loss rates. In the US these are available on a regional basis and can be analyzed by type of loan and borrower. Publicly available data in most other countries is either sparse or non-existent.
LIED rates vary with the remaining term on the loan and volatility of property prices. In the event of foreclosure banks usually act to sell the properties at auction.
Industry level statistics on home loans are less useful to specialist lenders focusing on segments where most lenders are not prepared to make loans. These include loans made where standard loan-to-value criteria are lowered (and this may be as a result of upfront subsidies on mortgagors’ legal and other costs), on older properties that are difficult to sell or to borrowers with an erratic earnings and employment history.
In some countries individuals may take out mortgages to purchase homes to let. These are riskier than loans to owner–occupiers and ability to meet payments is usually dependent on rental income. Such borrowers are at particular risk if they have taken out floating rate loans, interest rates rise and property prices and hence rental yields fall. Portfolio risks are particularly vulnerable to location concentration.