FMD, a theory
The sub-prime mortgage market is in an official mess, and will probably take some time to recover. Now the question I have, which leads to my theory, “Does this leave a void amongst institutional investors?”
Mortgages go through a process of securitization. Securitization is the process of selling non-conventional loan packages to investors (public or private) who represent an interest in the cash flow generated by asset-backed loans. Loans are sold to a trustee (for cash), who in turn sells the loan (in bond form) to investors. With respect to mortgages the bond is a MBS, Mortgage Backed Security.
With the collapse of the sub-prime market, and payments not coming in, I’m assuming investors would be weary of such securities, and would prefer higher grade mortgages or something different all together. That “something different” could be the private student loan securitization First Marblehead provides.
The environment maybe ripe for an already fast growing high demand business to get even more indemand and grow faster than expected.
My thesis above tells me FMD has become an even better long-term play, yet wall street is discounting it. The discount FMD appears to be trading at is well deserved. A lot of their earnings are booked, yet they have not received any cash yet. (A better understanding of FMD and their biz/accounting and fundamental arguement is at bankstocks.com, or click the link.)
FMD Technicals:
For a long-term investor, now maybe a good time to enter. I recently took a look at the weekly chart, and FMD is sitting on its 32SMA support.
FYI: I’m not that well versed in the process of securitizations or how they are sold. The above is just my logic.
