Quote:
Originally Posted by Snake Doctor
They came up with these nifty "collaterallized debt obligations" or CDO's as they're known in the industry....and the mortgages were all packaged together and sold as bonds/commercial paper on the open market. So in alot of cases, the company that services your mortgage doesn't have the authority to renegotiate, because the actual mortgage is owned by thousands of individual investors.
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What's interesting is that these and similar products have been around for decades. CMOs for example were created in 1983 and helped to bring about the downfall of Kidder Peabody in 1994. They created $200 billion in CMOs in their last 5 years in business. Kidder peabody did business with a number of hedge funds which bought and sold these CMOs from them. Then the FED unexpectedly raised interest rates and their heavily hedged positions buried them.
Some interesting comments in this 1995 filing by Capstead Mortage
http://sec.edgar-online.com/1995/08/...8/Section7.asp
"Of the $160 million of Mortgage pass-throughs formed during the first quarter of 1995, $137 million were were baqcked by adjustable rate mortages".