Tuesday, February 20, 2007

Mortgage servicing

I loved this super detailed post on mortgage servicing by Tanta on Calculated Risk. More on this later.


What I liked most about Tanta's piece is how it takes the covers off the financial world -- which is always smooth on the surface -- and reveals the actual mechanics that move the money around. Usually these mechanics do not matter, except when there is a shock that dramatically changes some risk premium, which then echoes around seemingly unrelated financial markets. When Russia defaulted on the rouble in the late 90s, Indonesian paper companies and Brazillian manufacturers were slammed as well even though those economies are in no way tied to Russia, or to each other. I don't know what will happen in the housing market, or to what degree the subprime and prime markets are related, but Tanta's post offers a great glimpse into the messy nuts and bolts that make American mortgages work.


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