Mr Cooper Group Inc (COOP)

[Dmdmd2020]

Good morning All

The following is my attempt to :

1) narrow down the exact participation percentage of all MBS Trusts (which WMI subsidiaries sponsored from 2000-2008), and I'm going to use many assumptions which will be backed up by some DD accumulated throughout this Wamu saga.

2) determine amount owed to Escrow Marker Holders (rightful beneficial owners of interests in residual Equity Tranches as well as Tranches senior to Residual Tranches)

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Per post #498320

"For those that want full details of how to value MBS the following lecture by the Yale professor is very enlightening:

Starting at:

13:47-- Historical percentage of Prepayment between 1986-1999 peaked at about 60%. Per JPM 2013 & 2014 annual reports, the percentage of Prepayment/liquidation was more than 76%. IMO...the $165 billion in MBS is probably a lot more than 76% liquidated by now! Which means that liquidated funds are all in cash!


24:27--Model of Prepayment

51:00--What happens to mortgage value as interest rates decrease?

Mortgage value increases as interest rates decrease.

56:06-- Hedging

If you have 75 minutes to spare...it's a great video to watch.

IMO...this is an example of how financial instruments like MBS can make people rich beyond their wildest dreams if you knew that interest rates were going to be at all time lows (I think Bonderman et al. knew exactly where the interest rates were going...and they knew how much profit they can garner)! "

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IMO...Conclusion:

1) Historically, September 1993 had a maximum of 60% prepayment of loans, which means that mortgages under MBS Trusts would be liquidated if prepaid.

2) Historical 30 year fixed mortgage rates

https://www.hsh.com/monthly-mortgage-rates.html

September 1993 = 6.919%

September 2008 = 6.646%

The interest rates are very similiar so I'm going to assume that 60% of all MBS Trusts were liquidated.

Therefore:

WMI subsidiaries securitized $692 billion into MBS Trusts from 2000-2008

Liquidation in cash = $692 billion x 60% (estimate liquidated across all MBS Trusts) = $415.2 billion

From post #504195:

"1) As of the seizure (September 25, 2008), WMI had a total of $35,774,139,000 by virtue of total assets from MBS Trusts Assets (which only include assets from tranches senior to "Residual" tranches) "

$35,774,139,000 / $415,200,000,000 = 0.08616 or 8.616% participation in all MBS Trusts

IMO....ultimate conclusions:

1) WMI participating interests in all MBS is between 5.16% to 8.61% (estimated for numbers in September 2008)

If 100% of all MBS Trusts were liquidated on September 2008:

$692 billion x 5.16% = $35.7072 billion (no compounded interest included)

If 60% of all MBS Trusts were liquidated on September 2008:

$692 billion x 8.61% = $59.5812 billion (no compounded interest included)


The residual amount might be bigger than expected because losses were probably mitigated by the trustees of each MBS Trust by virtue of CDS (Credit Default Swaps).

Watch the movie : "The Big Short" which illustrates how DB made money off of Credit Default Swaps.

The residual amount would also increase due to Interest Rate Swaps

and NIMS (Net Interest Margin Securities).



"DEFINITION of 'Net Interest Margin Securities - NIMS'
A security that allows holders to access excess cash flows from securitized mortgage loan pools. In a typical net interest margin securities (NIMS) transaction, excess cash flows from the securitized mortgage loan pools are transferred to a trust account. Investors in NIMS receive interest payments from this trust account.

BREAKING DOWN 'Net Interest Margin Securities - NIMS'
The creation of NIMS is facilitated by the fact that numerous securitized mortgage pools contain subprime mortgages with interest rates that are much higher than the typical rates offered to mortgage-backed security (MBS) investors. The bigger the difference in these interest rates, the more the excess cash flows generated by the MBS and consequently the higher the value of the NIMS. Of course, the value of the NIMS can decline rapidly if there is a significant increase in the default rate of the mortgages held in the MBS, and a subsequent decrease in excess cash flows."


Keep in mind that interest rates went to all time lows:

January 2008 = 6.244%

September 2008 = 6.646%

August 2016 = 3.552%