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They’re B-A-A-A-C-K! Subprime, er, “Non-Prime” Mortgage-Backed Securities

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COMMENT: Albert Einstein is reputed to have defined insanity as; “Repeating the same action over and over and expecting a different result.”

Hungry investors are now focusing on bonds backed by US residential mortgages that do not meet strict credit guidelines.

Let’s hope the reassurances in the story below are on target. We wish we could say we were optimistic.

Interested listeners/readers should take the time to view a superb documentary on the financial collapse–“Inside Job.” It is NOT reassuring.

We also note that, in FTR #412,  we directly foreshadowed the financial crisis in early 2003.

“Subprime Repackaged as Investors Feel Ready to Embrace Risky Borrowers Again” by Joe Rennison and Anna Nicolaou; Financial Times; 9/8/2015; p. 1.

Yield-hungry investors are ready to endorse a revival of bonds backed by riskier US residential mortgages, as lenders warm to housebuyers who do not meet strict borrowing guidelines introduced after the financial crisis.

But the now toxic label of subprime mortgages has been dropped. Instead, Angel Oak Capital is in the process of pricing a deal for a bond offering of so-called “non-prime mortgages” — a term funds are using to describe mortgages that do not meet government standards. Lone Star Funds completed a deal worth $72m in August.

Lower-quality subprime mortgage-backed securities have drawn fierce criticism for their prominent role in the 2008 housing crash, with bond king Bill Gross saying 2m homeowners were “thrown to the wolves”

But those who support efforts to breathe life back into the market say this time is different. . . .


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