#14
discount rate is not that important in the calculation. i just use the spread between mortgage rate and discount rate, which is 1%.
#15
agree that another price drop will dramatically increase foreclosure rate. the problem is whether such foreclosure rate is priced-in or not
#16
assume average is 400K, this gives 88 cents on the dollar. still match with the 90 cents by Apollo/TPG/Blackstone, and higher than 80 cents market price
#17
14T is not the future value, it is the future value then discounted back to today's value (by the 5% discount rate), if we assume zero default rate. that's why it's larger than 11T. the additional 3T is expected to be lost due to default.
#18
again, the rate is not that important in the calculation. the spread is. the 14T is larger than 11T simply because i assume zero default rate. later on i deducted the loss (of default) from the 14T and arrived at 11.2T. for sure subprime mortgage will incur a much higher default rate and that's why it is sold below face value. but my calculation consider all mortgage as an entire portfolio, so i didn't consider subprime separately.
to all, the calculation abstracted out many details because i just want to give a quick evalutaion of the situation. i apologize if the lack of details bothers you. |