What’s in the Accounting (please , no accounting!)

Under accounting rules, instead of paying investors fixed coupons and principal, the platform pays out two forms of cash flows from the pool of mortgages called mortgage-backed and asset backed receivables’.

The simplest form of mortgage-backed security is a mortgage pass-through certificate held in a capital account or trust corpus capitalized by preferred shares diluted from common stock. For example a $100,000 loan equals 400 shares valued at $250 price per share. The preferred shares are priced at 10:1 shares of common stock. In this way the REIT management called a TRS holds no more than 10 percent of the outstanding capital balance for ownership of stock shares.

Therefore no mortgage can exist at such time the stock is registered and held.   

In these deal structures, all principal and interest payments (less a servicing fee) from the pool of mortgages are passed directly to investors each month. A 30-year fixed-rate residential mortgage makes a fixed payment each month until its maturity. Each payment represents a partial repayment of principal along with interest on the outstanding principal.

Over time, as more of the principal is paid off, the size of the interest payment declines. Accordingly, the portion of each payment representing principal repayment increases over the life of the mortgage.

  • By comparison, an asset-backed security (ABS) is a non interest rate bearing fixed income instrument or bond that is structured as a securitized interest in a pool of assets.  ABSs have credit risk. Diversification of the underlying assets, credit enhancements or tranching can mitigate this. Following the 2008 financial crisis, ABSs didn’t suffer nearly the credit losses that MBSs did. The 2010 Dodd-Frank financial reform act broadly defined ABSs to encompass all securitizations:… a fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset, including (i) a collateralized mortgage obligation; (ii) a collateralized debt obligation; (iii) a collateralized bond obligation; (iv) a collateralized debt obligation of asset-backed securities; (v) a collateralized debt obligation of collateralized debt obligations; and (vi) a security that the Commission, by rule, determines to be an asset-backed security for purposes of this section.
  • The MBS objective is to monetize the note in a reverse order so the payoff demand equals the entire amount of payments and principal.

    I aver that it’s as if the lender is not entitled to payments until that time of a demand – then its by one lump sum at that certain trigger date. (The rules provided recognition is triggered at the time the payoff demand is issued.

  • The ABS is held to an alternative analysis upon which the amortization of the note is also subject to a payoff demand and is held to the timing of a bond versus the deed of trust. While the same holds true of the amortization, it is the latter objective that allows the promissory note to accrue in reverse order as if backwards. The claims cite where the amortization accretes foreword under what is known as a zero coupon bond. Herein is the argument for unlawful bifurcation or splitting the note from the deed and material alteration to the original contracts the household borrower executed at time of settlement. There is no renting of a borrowers signature through Mers Corp.

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