Finance/Credit Markets

[natecv8]

Hi Folks

I'm very interested on how it is banks organise finance on these international markets that are currently causing so much pain to our domestic mortgages.

In particular I wonder what it is that stops investors from obtaining wholesale finance from these same markets, avoiding the somewhat significant margins that retail banks make on these loans.

Couldn't an investor essentially sell their own securitised debt on these markets for wholesale rates? Would the major risk be the need to refinance in the event that the provider 'calls in' the loan - and wouldn't a retail bank face this same issue anyway?

To throw a spanner in the works a little, couldn't a number of investors get together in some sort of co-operative which sells their debt on the market? To create an analogy, I know that it is common in my industry for contractors to get together and form a sort of cooperative to manage income, PAYG, etc for maximum return. Is something similar possible?

 

[Piston Broke]

Yes they could.
But how much are you willing to pay for those funds?
And what interest rate would a buyer be willing to pay?
Think you'll find a buyer at 20%?

 

[natecv8]

Think you'll find a buyer at 20%?

I can't see why it would be that high. If you're saying that this is likely due to reputation, well I can't believe that buyers of debt have an encyclopedic knowledge of the reputation of every bank in the world, and I don't see smaller banks like Bendigo charging their customers 20%? They can't fully finance based on deposits, surely?

I am specifically suggesting the debt be sold under the same rating/documentation/risk management schemes as the banks would use. Sure, this is a lot of documentation for the end borrower, but banks and mortgage brokers have been making money for years doing this type of work.

If the high prices are due to current credit issues and worldwide short term debt pricing then fair enough. It might be a bad time for such a scheme. What about in the future when debt costs settle to a reasonable price?

I'm not suggesting this is a good idea but I'm trying to get an idea of what the specific drawbacks/issues would be.

 

[s_t]

hmm, have you ever loaned (?lent???) to anyone you don't know a significant amount of cash......

They will invest through the banks because the banks have [suppossedly] good processes and criteria in place in dispensing out that money, debt recovery etc etc

On the other hand, if they have it direct to you, you could do anything you want with it and they wouldn't be in a position to check up on you. Kinda obvious why they pay the banks to 'manage' the loans really!

 

[Shaun M Smith]

According to the latest information I have received from key players in the market, the current cost of funds on a full doc basis is 8.90%. In general each tranche is around $1bn.

The banks are currently lending around this mark in an effort to squeeze out second teir lenders in order to capture market share. The effort you would need to go to would not be worth it at the present time.

 

[natecv8]

According to the latest information I have received from key players in the market, the current cost of funds on a full doc basis is 8.90%. In general each tranche is around $1bn.

That's very interesting. Notwithstanding fixed loans, I can imagine that the banks are not looking forward to an interest rate cut - it really wouldn't benefit them at all given the low margin between those rates and the standard variable rate.