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October 30, 2006

Tranched mortgage pools

The fun is tranching pools of mortgages into different securities.
You take a package of mortgages, preferably from different areas
of the country, and then you create different tranches with
different credit qualities, and then one zero coupon that bears
all the residual risk.

The first tranch, naturally, gets all the guarenteed income stream
(mortgage payments) and bears *no* (or actaully, very little)
prepayment risk (it is good to maturity).

The next tranch gets income stream, and bears some prepayment
risk (if there are a lot of prepayments, it gets a swath if the other
tranches are fully repaid), and on down the line.

The last tranch before the zero gets income, but bears risk
if the income falls short (mortgages default), and also bears
*the most* risk for prepayment (it has a call option owned
by the mortgage holders, they can repay the loan if the
interest rate changes). If you own this last tranch, you have
lots of duration and gamma risk, whereas if you own the
first tranch you have a very different profile.

The 'residual zero' tranch is practically binary.

Either it pays off, or it defaults and gets the (last) bit of
recovery value in liquidation. Lots of folks use equity
models to calculate expected return on these.

Freddie and Fannie do this, but also Morgan Stanley and Goldman.
If you want to play, you can call them and they can cobble toghether
a structured deal that will match pretty much any flavor you want.
Some of their customers are developers who are highly exposed
to one geographic area (say, Toll Brothers) and need hedging.

A good intro book is Collateralized Mortgage Obligations
by Chuck Ramsey and Frank Fabozzi
. It goes beyond CMOs and
talks about a lot of the risk horizons and what traders of these
do and play with. Lots of former interest rate traders apparently
do well in this field.

As far as point three: you are talking 'real options' theory here,
and you have to look for a lot of asset value delta to overcome
the (identified) barriers to exit and entry and transactions costs.
I have yet to see a good book on the real options of real estate,
but the ones that come close deal with mineral rights and land
and mostly were developed for energy exploration. Not really
'commercial' or 'residential' real options.

Collateralized Mortgage Obligations: Structures and Analysis,
3rd Edition (Hardcover) by Frank J. Fabozzi, Chuck Ramsey.

[Overheard in Wilmott ]

October 19, 2006

MINI Arctic Expedition 2007

MINI Arctic Expedition 2007 planning.

  • Fundy / Gaspe Loop
  • Maritimes / PEI / Gaspe / Quebec City
  • Labrador + Quebec City
  • Return to Newfoundland


  • 2006 Exotic drive NY/NJ
  • Tri State 48HRS
  • 2006 Newfoundland
  • 2005 Radison, Quebec

  • October 18, 2006

    Standard Deviant, NY life

    Many bloggers have an irreverent, ironic take on NY life.
    The Standard Deviant, a substitute school teacher, is not
    left out.

    October 17, 2006

    Who's who of Real Estate economics 3: Todd Sinai

    We don’t have any house price indexes that get it right
    -- Todd Sinai, an associate professor of real estate at the
    Wharton School of the University of Pennsylvania. bio, home,

    Who's who of Real Estate economics 1:
    Dave Seiders, National Association of Homebuilders.
    Mortgage economists, who's who 2: Scott Anderson at Wells Fargo.

    October 16, 2006

    kizmeet, a slick 'missed connections'

    kizmeet: example:

    missed connections at NY Equinox Fitness.

    October 15, 2006

    7 Habits of Highly Successful People.

    1. Skiing
    2. Yachting
    3. Snorkeling
    4. Golf
    5. Polo
    6. Dinner parties
    7. Shopping

    -- Brendon Lloyd [McSweeneys].

    October 14, 2006

    Multiple Listing Service: Long Island, New York.

    MLS LI: Multiple Listing Service: Long Island, New York.
    Realtor listings for Nassau and Suffolk (and Peconic) counties.

    October 11, 2006

    WCBS NYC TV News

    CBS in NYC: wcbs TV in New York City: news, topstories,
    with non-hideous website design.

    October 10, 2006

    Audi rs4: hoontastic

    Best sport sedan proclaimed: 1, 2, 3.

    See also TTAC review by simile factory Jonny Lieberman and comment.

    October 9, 2006

    Interest rates, what moves mortgage rates?

    So what moves mortgage rates ? Supply. Demand.
    Competition for money. Inflation. The Economy.
    Expectations. And you, of course.

    October 8, 2006

    Glenn Greenwald / Unclaimed Territory

    Glenn Greenwald, litigator, (vs W) passes the hat.

    Unclaimed Territory on W, again. An appreciation.

    October 7, 2006

    Who's who of Real Estate economics 2: Dave Seiders, National Association of Homebuilders

    Once a sales contract is signed, there's no way of recording
    the cancellation or putting the home back in inventory.
    Builders keep track of gross and net sales; we don't have a
    net sales number from Commerce.

    -- Dave Seiders, chief economist at
    the National Association of Homebuilders in Washington.

    The Census Bureau, which is one of the Commerce Department's
    statistical agencies, counts an initial new home sale: Sales go
    up and the ``for sale'' inventory is reduced. If the sale is
    canceled, it isn't reflected in revisions to previous months.
    What happens? When the home is ``resold,'' statisticians
    ignore that transaction.

    We don't double count.
    -- Steven Berman, the survey statistician for the residential branch
    of the Census Bureau's manufacturing and construction division.

    Previously: Mortgage economists, who's who 1: Scott Anderson at Wells Fargo.


    Who's who of Real Estate economics 3:
    Todd Sinai

    October 6, 2006

    Visualization and segmentation: Gelman's bag of tricks

    Visualization and segmentation: Gelman's

    Bag of tricks
    for teaching statistics.


    See also Gelman's Data Analysis Using Regression and Multilevel/Hierarchical Models.

    October 5, 2006

    Trulia, Truliablog

    Trulia tracks real estate markets; updates in TruliaBlog.
    Sample housing market search Great Neck NY, 3 bedroom, 2 bath.

    An example of good URL engineering:

    See also: Zillow.

    October 4, 2006

    Street Easy follows LIC Queens condos

    StreetEasy monitors real estate markets; example: Long Island City, Queens.

    October 3, 2006

    NY traffic lawyer for speeding tickets

    I was not speeding: traffic lawyers and ticket fixers in NY and NJ:

    The National Motorists' Association NY referrals.
    Frank Desousa at ticketproblems.com
    fax (877) 742-2268
    ph (877)965-3237
    Fax them your ticket, they phone back with a free consultation.
    NYTraffic Lawyer
    A former NYC Traffic Court Judge
    NYC speeding tickets a specialty
    traffic-summons.com aka Michael Spevack
    recommended at SQC

    Casey W. Raskob: has personally lobbied for the 65 mph limit in Albany
    and at numerous Traffic Safety Conferences in New York State and
    elsewhere. With the National Motorist’s Association he has testified
    before the New Jersey State Senate and NY/NJ Port Authority on
    motorist’s issues. Self-description; recommended on NE Mini.

    October 2, 2006

    All about Alpha

    allaboutalpha, another investment and finance strategy journal
    where Alpha Male opines about portabe alpha.

    October 1, 2006

    BlackBerry 8703c on Sprint

    The Black Berry 8703c mates Colour and QWERTY and GPS
    to the SprintPCS PowerVision cel phone and network.

    Update 2009 July: Compare to BlackBerry 9630 Tour.

    The 8703e measures 4.3 x 2.7 x 0.77 inches and weighs 4.7 ounces
    (135 grams). It runs on 64 MB of flash memory, 16 or RAM and a
    312 MHz XScale processor.

    There's RIM's aforementioned signature 35-key QWERTY
    thumb-keyboard, of course, plus a QVGA (320 x 240 pixel)
    resolution display that supports over 65,000 colors. The
    device incorporates intelligent light sensing technology
    that automatically adjusts both the LCD and keyboard
    lighting to provide an optimized view in outdoor, indoor
    and dark environments.

    High speed broadband EV-DO data (average download
    speeds of 400-700kpbs and up to 2Mbps peak speeds)
    in 216 major metropolitan areas as well as 486 airports.

    Key features include:

    * Sprint Mobile Broadband enabled on the Sprint Power Vision Network,
    the nation's largest mobile broadband network
    * Fast Web browsing, application performance and attachment viewing
    * GPS-enabled to support location-based services
    * BlackBerry "push" technology
    * Phone-as-modem capability
    * Bluetooth® wireless technology headset and car kit support
    * High-resolution color LCD screen, automatically adjusts lighting for
    indoor and outdoor viewing
    * Complete, high-end phone features including speakerphone,
    dedicated "send," "end" and "mute" keys, plus user-definable "convenience" keys
    * Bluetooth® 2.0 to support wireless headsets and car kits
    * 64MB of flash memory to store and run powerful enterprise, personal
    productivity and game applications
    * Integrated attachment viewing for popular file formats.

    CNET (Bonnie Cha reviews: video and text.

    [Sources: Research In Motion (RIM), Sprint 1: 2, PhoneScoop, BlackBerryCool,
    PDAStreet, InfoSynchWorld, BBHub, GearLog, MobileTracker, EV-DO Info,
    BlackBerryAddict, MobileWhack.]