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User Info	What am I missing about ABX ?; entered at 2007-12-02 08:52:46
Sandra Posts: 3764 Registered: 2007-06-27 New York, NY	Yal, nobody can really figure out what will happen unless they know the approximate pool which we don't know yet. The ABX-HE are indices made up of securitized mortgages. First, we don't know if this will even affect those since the investor may protest and you would need legislation (not just a suggest from the Treasury Dept) to do that. Second, if the loans are modified, they are often bought out of the pool backing the security, so they aren't in there anyway, yet they have the effect of reducing the payer portion so the default portion may rise.....but, we don't know because we don't know the pool that it affects yet. Third, you need access to a CMO/ABS calculator to evaluate this These are structured products with principal and interest cashflows routed to different tranches depending on how much comes in in any one month. Though the assumed default rate is important to value these bonds, and the spread (sentiment), so is the coupon. Also, you are only talking about the 2/28s or 3/27 ARMS collateral. Nobody can really make blanket statements about what will happen until we have enough data in order to study it, and it must be studied using structured product calculators. It is just too complex. I will tell you, though, that if this isn't voluntary and becomes law, the market for these subprime ARMs will go away because no investor will want to touch them with such low yield for so much risk. I guess the market has kind of gone away anyway, though.... So far, we just don't have enough details, and IMHO it just looks like more political BS/lip service that will affect very few people. Last modified: 2007-12-02 09:01:14 by sandra 2007-12-02 08:52:46