Some excerpts.
By Jody Shenn
July 1 (Bloomberg) -- Banks are buying the mortgage-backed bonds that hobbled the global financial system, helping to sustain higher prices for the debt, according to Federal Reserve data, investors and traders.
Large U.S. commercial banks held $154.6 billion in mortgage securities that lack government backing on June 17, an increase of 5.6 percent since April, Fed data show. Typical prices for the most-senior such securities backed by prime-jumbo mortgages have risen to 75 cents on the dollar from 63 cents in March, according to Barclays Capital.
Banks are investing more in securities as deposits rise faster than lending. Commercial bank deposits have soared 9.5 percent to $7.56 trillion since the week before Lehman Brothers Holdings Inc.’s September collapse triggered a stock-market sell-off and about a month before the Federal Deposit Insurance Corp. increased coverage to $250,000 per account, from $100,000. Bank lending rose 1.4 percent to $7.01 trillion in the same period, Fed data show.
Some of the bonds “are selling at deep discounts” that “can represent great value,” said Robert Clarke, a former U.S. Comptroller of the Currency who is a senior partner in Houston at the law firm Bracewell & Giuliani LLP. “I just hope it doesn’t turn into a lemming-like response again” and “that banks, having been burned once by touching the stove, would not be buying this stuff unless they did a lot more due diligence than the people who bought it the first time around.”
Voluntary Reporting
Fed data on the securities, released each Friday, reflect voluntary reporting from about 30 unidentified banks with more than $40 billion in assets each, or about two-thirds of the total for all U.S. banks, the central bank says.
Spokespeople for JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group, Morgan Stanley, M&T Bank Corp., SunTrust Inc., declined to comment on mortgage-bond investments or didn’t return messages.
“Nobody wants to admit they’re actually buying these things,” said Harry Davis, banking professor at Appalachian State University in Boone, North Carolina.
‘Isn’t Toxic’
“The stuff they’re buying isn’t toxic: It’s been mostly high-quality stuff at better levels than anyone could have possibly imagined,” said Scott Simon, head of mortgage-bond investing for Newport Beach, California-based Pacific Investment Management Co., manager of the world’s largest bond fund. “That doesn’t seem irresponsible to me.”
Delinquency rates in the non-agency market continue to set records. In May, borrowers were at least 60 days late on loans that accounted for 23 percent of the non-agency market, up from 14 percent a year earlier, Bloomberg data show. About $1.8trillion of the debt existed on March 31, Fed data show.
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*DEFLATION DEFLATION DEFLATION until my hair hurts. That is what needs to happen whether we like it or not is irrelevant. If REFI's are off, then how is higher prices of housing going to stabilize the financial system? It isn't. Ijiots think if we prop up the prices and continue to sell JUMBO loans then everyone else's prices will rise and then we can do REFI's again and make BIG money in fees. One problem: JOBS JOBS JOBS. I guess the Treasurer and the bankers don't read the numbers. Goldie Locks Economy here we come. Don't be surprised when next years collapse is bigger. Just read further. And no it is not a good thing that they are doing this. -Tradebum
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