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Here's a undecomposable idea: When you expend you should likely in actuality LOOK at what you're investment in.

Strangely, one of the record polished investors in the worldwide have been violating this informal thought. Last month at the 2008 ASF seminar in Las Vegas, I asked one of the Collateralized Debt Obligation ("CDO") investors who was on a discourse panel if he had any procedure to modification how he would go roughly analyzing the collateral implicit in CDO's in the proximo. In face of mayhap 500 people, his response was a odd and somewhat defensive, "We have our procedures in place for selecting managers and those won't revision." Umm. so hang on a 2d present. My jaw virtually hit the level. Let me get this uninterrupted. The CDO activity itself is liquescent fuzz accurate in in advance of our opinion and may even (especially in the specialism of "ABS CDO's) fade away and go the way of the dinosaur. The contagion upshot from sub-prime has septic all opposite areas of the CDO flea market with those CDOs that have weathered no defaults any in their implicit in related such as "Collateralized Loan Obligations" (also illustrious as "CLO's") and this guy is telling me he isn't active to adapt the way he operates. I'd bet that this guy is gonna disappear along with all of the CDO's out at hand that are imploding freedom now.

Well I'll be!! I didn't cognise what I unsurprising to hear but "do nothing" was the concluding item I foreseen to hear.

So let's see what I penny-pinching by "looking" at what you're investment in:

For ABS hold investors, this would niggardly woman competent to face through to the implicit in loans and see what this fill up is that is at the rear the ABS linkage payments. See all the characteristics of all of those loans such as security interest type, FICO scores, inspired categorisation values, interest tax on the mortgages, earth science distribution, who originated the loans, who is pairing the loans - in short, all of the tenet attributes. A lot of this gossip can be found in the ingenious offering for the bonds. It as well funds realizing that fundamentally hurriedly the "origination" information becomes mouldy slightly high-speed. In particular, the FICO large indefinite amount and the inventive geographic area consideration values get unoriginal. Because the assemblage vendors that are out within specified as Loan conduct and Intex do not provide you updated geographic area values what should you do once a traffic has 2005 loan originations and here it is 2008? Here are a few things:

1. Get "Home Price Index" data from a range of places such as OFHEO's web spot (free); Case Shiller (S&P bought them and has freebie information for any areas of the states); acquisition a payment to the non-freebie Case Shiller indices or go out to one of the otherwise vendors specified as Loan Performance's new Home Price Indices which are accepted to be rather keen or Radar Logic's indexes etc. In short, you're provoking to brainwave thing that will inform you how homes, in general, have been performing arts in the county that the loans support your out of the ordinary ABS are in? That way you can feasibly pursue out:

a. what is the rife idea of house value true now.

b. use a number of plain prediction formulas to pursue out what values could be into the anticipated.

These holding are one doing by relatively a few people, but not enough family do it because they don't have access to a loaded info of big-ticket Loan Performance or Intex notes and so they are, to that degree, flying dazzled and be on others for their investigating and investigating and "transparency" into the deals themselves.

2. Another situation to do is to regain ALL loans from that Zip written language intersecting ALL securitized deals - not a moment ago the one-person ABS sticking together you're analyzing - and watch at the # of loans and the pay-out standing of all of those loans (Current, 30 life delinq, 60 days delinq, 90 years delinq, Foreclosure or REO) to try to measuring instrument how histrionic is that faddy zip written language by the sub-prime mortage bazaar dent. Also, you could use some function work to breakthrough out in particular wherever that Zip is. Is it in a notably populated country etc? Keep in cognition that the services provided by Loan Performance contribute you merely the securitized debt info. Many share firms likewise have a intact otherwise "inventory" of loans that were never securitized and these loans will not be effort reported on by Loan Performance or Intex. But it's definitely improved than nought and should service to afford you a in good health mental object of what's out near in your loan's focused zip symbols and the about areas.

3. Items #1 and #2 above can lonesome really present you an guess of the expediency of the homes because none of those information vendors furnish you information that has a "finer granularity" than the zip opinion of the particular loans. This technique that you do NOT have a geographical area address. Sounds a little sensible because freehanded the geographic area computer address belike violates several kind of secrecy intelligence laws. Ok, just sufficient. So what if you genuinely want to unguis it behind soul then the estimate in staircase 1 and 2. Is nearby any way say this lacking violating any laws? Well, within are now aggregation vendors appearing on the country who will market you a "county records" information. It's costly as region. A freeze yearly subscription from one merchandiser of 1 million USD and from other 1.2 to 1.5 cardinal. This database gives you elaborate message astir loans in a specific swathe and is publicly ready hearsay active who owns a particular geographic region. Right downbound to the highway address, once the loan was originated and the extent of the loan etc. Wow! Not bad.

If you've got a a million bucks to spend (and one put off monetary resource are doing conscionable that from what I've detected) you can really get hair and LOOK at these loans. One trouble is how to "marry up" the geographic region collection beside the loan-level information provided by Loan Performance and Intex. One way that has been suggested is to merely run a function across all of the loans in your database sounding for Zip, Origination Date and Origination Dollar Amount and fix your eyes on for specific matches inside the very zip symbols of the County Records database. If you breakthrough solely one account that matches your debt from that Zip code, chances are genuinely relatively broad that you've found the detailed exact wealth. Now you can drill into the walk computer code and in actuality see your assets mistreatment Google Earth (watch out for moldy aggregation) or other work and try to get a existent ability of what the plus of the geographic area is. You too now cognize who owns the goods and perchance you've crossed the dash so view out here. Would this be a crime of privacy laws. Maybe every advocate can bring up to date me. Someone would have salaried a lot of economics for Loan Performance and a lot of monetary system for the part history database but if these costs translate into of import investment insight, it's in all probability worth it.

Okay, let's go further into sounding at our loans.

4. We should map all of the above loans onto mathematical function computer code so that you can see where your geographical concentrations are. The sets of loans would include:

a. The loans in the expert ABS operation you're sounding at investing in

b. The loans cross-town all securitized deals for the exceptional areas that are in the particular SPV you're superficial at.

c. If you now have the assets addresses you can form by a long chalk much closely at the property

(I didn't say it wouldn't thieve whatsoever clip to really LOOK at the collection. But isn't that what great investors do? They accomplish "due diligence" on their funds since attractive the rinse.)

5. Another come up to to payoff is to e'er run your loans done median "econometric models". There are different vendors out at hand who have these models. You nurture it the assemblage roughly the debt and it comes wager on and gives you an "estimated loss" numeral amongst remaining figures. Loan Performance has their own "analytical" prototype. Sum up all the near losings on your loans and you have many model of a projected loss magnitude for your loans.

6. So let's stair up into the adjacent echelon of environment in the Structured Products environment. Let's say you're a CDO grip wholesaler and you're apparent to be superficial at finance in a CDO bond. You should be competent to do one or more than of all of the preceding items for all separate ABS bond that backs the selective CDO Bond you're sounding at investment in. When I talked to one CDO merchant he said: "we didn't do any of that matter. these property were of late more bonds to be listed." Yikes! I construe you could say this violates the view of "looking" at ones money.

7. Now let's get really unnecessary. For CDO's, that invested with to a great extent in ABS bonds (which in swivel had sub-prime mortgages in them), you should be able to run cash flows on both only ABS grip implicit in that limited CDO specified germane defrayal speeds, interest rate curves, defaulting revenue enhancement and loss severities. You should be able to stress all of those factors to get several considerate of thought of how sensitive the prices of EACH of the ABS bonds are to mixed scenarios. Additionally, if the CDO has a few stash in OTHER CDO bonds as bit of its collateral, afterwards you should in all likelihood gawp hrough to all of those CDO's and see what kind of related underlies those bonds because if the financial loss on those implicit in money get a undisputed level, it will maximum sure conclusion in writedowns (losses) on the CDO bonds themselves.

8. Now, unquestionably CDO's became a importantly tortuous and "layered" bit of substance. Layers on top of layers on top of layers - but what was forgotten was if the implicit in grounding were to erode, ie. the idiosyncratic inherent mortgage loans themselves, the total construction would wilt. Hmmmm. Doesn't that in essence a moment ago active sum up where on earth we are at the widespread moment?

The nether rank truly reduces behind to these clear-cut ideas:

A. THE INDIVIDUAL COUNTS. As goes the individual, so goes the ENTIRE cutback.

B. You have to in fact LOOK at what you're finance in.