[DesertCat]

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I'm not sure what you mean by huge assets they don't own and liabilities that are non-recourse. If you mean term securitizations (as in most MBS/ABS transactions) that's not part of their book in any sense, except for three aspects - 1) They may or may not own residuals (equity tranche/first-loss position) and this may be what you're talking about in terms of the cash they can get. For most recent deals, the value of this will be close to zero. 2) The loans they sold into the securitization will have warranty for EPD (early payment default), fraud or other types of misrepresentation. This is a clear liability in this market. 3) They may or may not have retained servicing rights to the loans in the securitization (a fee for continuing to service the loans). This is another source of residual cashflow, though becoming less common for smaller shops.


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Many securitizations are still held on balance sheets, even when totally non-recourse (i.e. well after any EPD liabilities have expired). I'm not an expert on the accounting reasons why, but I believe in the cases I've seen it's because the securitization is effectively owned/controlled by the parent company.

In the company I referenced, they have some residual interests in 2004 securitizations that are just held as assets at estimated fair value, but their 2005 securitizations are entirely on the balance sheet. I can't tell you why they are accounted for differently, just that they are.

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All this is probably less of a concern (and easier to evaluate with reasonable amounts of disclosure) than loans in the pipeline that are held in a warehousing facility (which will generally be part of their book). Any serious mortgage market disruption can put the lender out of business because most of those credit facilities can be pulled on a moment's notice, in which case the lender won't have the luxury to wait to sell the loans into an appropriate securitization. In a liquidation scenario, you'll find that most lenders have very little value.

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I'm not talking about warehouse facilities. This company shut down theirs long ago.