Friday, December 15, 2006

It's 9:00 PM - Do You Know Where Your Mortgage Is?

Bought a house in the past 10 years? Probably. Took out a mortgage? Of course you did.
The first chart below is the annual increase in residential mortgages, i.e. the change in mortgage debt outstanding between consecutive years. Lots, eh? But that's not the point. Keep reading.

Mortgage lending was once boring business. George Bailey stuff. Not anymore. Now it is ARM, MBS, CMO, CDO, HBX stuff. Your mortgage has been sold, packaged, securitized, insured, indexed, loaned, hypothecated and traded back and forth a million times.

The presumed value of your monthly payments is likely serving as collateral for a Bermuda-based hedge fund's bet on pork bellies. Or it has been used to pyramid the issuance of credit default swaps for extending even more mortgages.

Of those new loans above, 50% are now packaged by private entities. See the next chart. The connection between the housing bubble and "funny money" debt is pretty obvious. Won't you say?

So? What's it to me if my mortgage is a juvenile delinquent night-crawling for an easy yield pickup? As long as you pay up regular as a swiss clock - nothing. But if you need to catch a break, you need to know that George Bailey no longer runs the show down at Building & Loan. A black box does. And it doesn't make collections to help you out.