As the SEC attacks Goldman, we get an instructional example of the securities involved, as well as the consenting adults involved, with a proposed mortgage-backed-security offering from Redwood Trust (RWT).
To be clear, I am not an expert in these securities. Rather, I'm sharing the offering documentation as an example of what is shared between consenting adults in these transactions. This is not at apples-to-apples comparison with the ABACUS security offered by Goldman Sachs, which was a "synthetic CDO," another step removed from securities like the one highlighted below.
The NY Times reports:
Redwood Trust is looking to float at least $200 million worth of securities backed by home mortgage loans, The Wall Street Journal said, citing people familiar with the situation.
The newspaper reported that Redwood’s plan marks an attempt by a private player to reopen the market for securities backed by home mortgage loans without any government backing, Reuters said.
So let's check out the offering documents.
I'd note that the weighted-average loan-to-value ratio, as well as the rather high credits scores, are a good sign.
Note the average credit scores of the mortgage owners...plenty of people making $50k a month and up, with credit scores in the upper 700's. I certainly know many people with similar credit ratings but much lower income, which is one of the myriad reasons that mortgage securities bombed in recent years...
For the most part, the loan profile of the current offering is of much higher quality of older securities.
Like this 2006 vintage...Note the different ways to say "less than full" documentations of loan applications:
Like I said, these are VERY well documented transactions, between consenting adults. Firms like IKB of Germany are suing firms like Goldman Sachs to get around the fact that they did an embarrassingly small amount of due diligence when investing on behalf of their clients.
In true irony, today's "Credit Default Swaps" on IKB are spiking. (From CMA DataVision)
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