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800 billion of subprime mortgages about to reset

The American dream is overbought and overbuilt. Foreclosure rates are climbing fast everywhere, with Florida being ground zero for the disaster.

Image from the Monte Carlo Simulation of CDOs (Part 2), this being the probably faulty way that ratings companies value bonds comprised of bundles of mortgages. Not to mention that they make fat fees doing the ratings.

“The danger with Monte Carlo is that it gives you a false sense of security,” he says. “If the input data that you use is a little bit uncertain, your numbers are going to be trash, but they will look convincing.”


  1. With the stock market rocky and the real estate market in the toilet, those who pulled their money out are looking for a good investment. Credit-worthy borrowers may find credit in the private sector if banks can’t (or won’t) provide loans.

  2. Mortgages are tough to get now. Even people who put 20% down with high FICOs are getting turned down. And if a jumbo loan (more than $417,000) is needed, it’s even more difficult.

    The primary problem is that mortgages get packaged and sold instantly. Or, at least, they used to. That secondary market for mortgages has now mostly stopped.

    We sold our house in Los Angeles on Jan 28, 2007, just before subprime hit. Even though we have perfect credit, we probably couldn’t have gotten a mortgage for our new house under the current climate because we are self-employed.

    Our broker in L.A. says the house we sold would now go for 15-20% less than what we sold it for. That’s a huge drop in just nine months.

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