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You Lucky Bastards: FMD
- Thread starter ByLoSellHi
- Start date
Quote from Susannah:
I thought even in bankruptcy, you can't default on a student loan?
tells you how much i know. wonder what this is about.
this is what i mean.. CDOs are cake compared to this stuff.
http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html
http://www.nolo.com/article.cfm/objectId/76BDA7E4-496A-4602-AC7C62F179C9A46D/213/208/135/ART/
http://www.moranlaw.net/studentloans.htm
Wow... now someone help break down this balance sheet.. This is unshirkable debt.
This might just be the closest thing to free money besides buying BBB ABX credit default swaps at 98.
I read that there are terms that if the securitization markets shutdown, then FMD is obligated to buy originated loans from the bank. While this is unlikely, I am curious to know if this is the case. Is there any documents on this that anyone knows about?
I am also confused that FMD has Loans held for sale has 358,023. Are those securities that FMD is holding awaiting sale? I thought it is a middleman.
http://finance.google.com/finance?client=news&q=FMD
Took this from the summary:
"In April 2008, The First Marblehead Corporation filed for bankruptcy protection."
??
I am also confused that FMD has Loans held for sale has 358,023. Are those securities that FMD is holding awaiting sale? I thought it is a middleman.
http://finance.google.com/finance?client=news&q=FMD
Took this from the summary:
"In April 2008, The First Marblehead Corporation filed for bankruptcy protection."
??
Quote from scriabinop23:
Trying to read this balance sheet (its a tad opaque for me since I'm not familiar with some of the structure and design of cashflow in their business), but here
http://www.sec.gov/Archives/edgar/data/1262279/000104746908001106/a2182489z10-q.htm
States effective last yr loans held for sale of 358m. I assume that is their direct risk (easily offset by their cash holding), assuming they've securitized none of that.
Anyone know how they go about securitization, collection of revenue, etc.. their whole structure ?
I assume they are dependent on the auction rate securities market (dead in the water temporarily since bond insurers/teri/etc plumetting in ratings and/or bankrupt) to raise cash. I obviously don't understand the structure of this business though, since a securitized and sold product is entirely off the books ... are they directly selling on the ARS market? or is there an intermediary?
someone can just explain this whole structure.. give me a step by stop how their business normally operates, then how it is currently operating. i'm interested to learn .. same goes for SLM .. i haven't a clue.
But it looks from my superficial knowledge that they have enough cash to ride out a halted cycle regardless of default levels, are trading at around cash value, and more likely than not the govt will step in. After all, if the fed could bail bear stearns assets on the market, it isn't a stretch to assume the house/congress does something to assure kids can get loans to go to school. This is main street in a big way. Additionally, on the bright side, if they are dead in water, they still have cash and just can lay off most of the work force and go into capital preservation (servicing existing loans) mode .. run lean and have barely any opex. A 1:1 leverage model gives FMD liberty to even be pleasant to not 'default' its debtors ... short of going into bankruptcy, student debtors probably have lower default rates than credit card holders or even 100% cashed out refi heloc debt holders. New bankruptcy laws should provide some help to them (FMD)... Doesn't look like barely any risk for potentially double/triple/quadruple once we come out of this period.
Quote from scriabinop23:
tells you how much i know. wonder what this is about.
this is what i mean.. CDOs are cake compared to this stuff.
http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html
http://www.nolo.com/article.cfm/objectId/76BDA7E4-496A-4602-AC7C62F179C9A46D/213/208/135/ART/
http://www.moranlaw.net/studentloans.htm
Wow... now someone help break down this balance sheet.. This is unshirkable debt.
This might just be the closest thing to free money besides buying BBB ABX credit default swaps at 98.
Quote from protodigm:
I read that there are terms that if the securitization markets shutdown, then FMD is obligated to buy originated loans from the bank. While this is unlikely, I am curious to know if this is the case. Is there any documents on this that anyone knows about?
I am also confused that FMD has Loans held for sale has 358,023. Are those securities that FMD is holding awaiting sale? I thought it is a middleman.
http://finance.google.com/finance?client=news&q=FMD
Took this from the summary:
"In April 2008, The First Marblehead Corporation filed for bankruptcy protection."
??
That's the first press error that sent the stock into freefall.
Instead of saying "TERI filed for bankruptcy," Reuters or AP reported that First Marblehead did.
They later corrected the story.
The second errant story that ran across many headlines was that the risk of default on the underlying loans shifted back to FMD once TERI (the insurer) filed for bankruptcy.
From everything I've read, and everything I've discussed with many people, this is not the case. Once the loans were securitized, after being insured by TERI, and sold to a bank or 2nd party, FMDs liability on risk of default ceased forever.
I have never seen so much confusion surrounding a stock as this. If what I think is true turns out to be true, misinformation published by the media has been 99% of the reason for the downward movement of this stock.
So, FMD is sitting there, with all this cash on hand, and no debt, with their feet up on the desk, knowing that parents and students are panicking about how they will finance fall college tuition, without a worry in the world, politely declining a 1 billion dollar line of credit Goldman extended to them (why would they need it, right?),, awaiting Goldman's additional cash injection of 100 to 200 million dollars???, feeling confident that government will step into TERIs former shoes as an insurer of last resort if no one else does????
And then someone linked an article that showed defaults on student loan debt declining from 20% in 1990 to 4.6% in 2005, and the bankruptcy amendments of 1998 and 2005 that basically made student loan debt nearly impossible to discharge, even though FMD isn't even liable for such defaults.
And then there's a front page article in the NYT tonight that says private lenders like FMD charge interest as high as 20% on student loans depending on credit, etc.
Is this not a lower risk business model than the credit card business?
I'm not afraid of anything I've read. I'm only afraid of what I might be missing because it doesn't make any sense that people got shook out of their positions because of inaccurate newspaper/magazine reports.
What am I missing? Anyone?
http://media.corporate-ir.net/media.../Presentations/ASF_Presentation_1_31_2008.pdf
Learning more about the business..
Look page 26. Look at the percentage of the loans cosigned, as well as avg fico.
Learning more about the business..
Look page 26. Look at the percentage of the loans cosigned, as well as avg fico.
FMD originates loans for people who can't get loans from salliemae in addition to that.
Whose to say government won't just take full responsibility in originating loans from now on (basically get rid of income cap) given this crisis? It would be easy to just extend the scope of loans from sallie mae. With a combination of nationalization and lack of faith in private sector, it is possible that the market for student loan securities here may never rematerialize!
FMD has previously sold a lot of securities that ended up being junk. If the securities market were to start up again investors will need to have faith in FMD as well as its insurer to be willing to purchase them.
Barring nationalization of originating student loans, I think the risks are very low. FMD has high cash reserves and most importantly, it has connections with goldman which hopefully will allow it to distinguish itself from other middleman after the chaos.
Whose to say government won't just take full responsibility in originating loans from now on (basically get rid of income cap) given this crisis? It would be easy to just extend the scope of loans from sallie mae. With a combination of nationalization and lack of faith in private sector, it is possible that the market for student loan securities here may never rematerialize!
FMD has previously sold a lot of securities that ended up being junk. If the securities market were to start up again investors will need to have faith in FMD as well as its insurer to be willing to purchase them.
Barring nationalization of originating student loans, I think the risks are very low. FMD has high cash reserves and most importantly, it has connections with goldman which hopefully will allow it to distinguish itself from other middleman after the chaos.
Quote from scriabinop23:
http://media.corporate-ir.net/media.../Presentations/ASF_Presentation_1_31_2008.pdf
Learning more about the business..
Look page 26. Look at the percentage of the loans cosigned, as well as avg fico.
Great find.
Okay, so if I'm reading and interpreting correctly, 83.7% of the most recent batch of loans were cosigned (or is it co-signed?).
Is this a parent or parents co-signing with the student? Or is this cosigned as in securitized as in sold in secondary markets?
99% of loans are creditworthy? What about the other 1%???
Average FICO of 711?? That's a damn good average, no?
The cosigned part is confusing to me, because I don't understand lending practices. In layman's terms, I read this as co-signed by a parent or whatever. No?
Quote from protodigm:
FMD originates loans for people who can't get loans from salliemae in addition to that.
Whose to say government won't just take full responsibility in originating loans from now on (basically get rid of income cap) given this crisis? It would be easy to just extend the scope of loans from sallie mae. With a combination of nationalization and lack of faith in private sector, it is possible that the market for student loan securities here may never rematerialize!
FMD has previously sold a lot of securities that ended up being junk. If the securities market were to start up again investors will need to have faith in FMD as well as its insurer to be willing to purchase them.
Barring nationalization of originating student loans, I think the risks are very low. FMD has high cash reserves and most importantly, it has connections with goldman which hopefully will allow it to distinguish itself from other middleman after the chaos.
My understanding is FMD is best in breed in screening default risks, and very few loans they process end up defaulting.
I don't think the government wants to set up another branch of government in addition to Sallie Mae to process private lending??? Why wouldn't they just increase government lending limits and expand Sallie Mae??? I'm sure Sallie Mae is less efficient and more layered bureaucratically speaking, no?
The simple solution for FMD is to line up another insurer, period, with the government being a sure thing. No bank would refuse that insurer when buying loans FMD processes.
Reading this, this implies their liability exposure (unsecuritized loans) is significant versus their cash position, moreso than i see with the obvious unsecuritized 350m against their cash. Anyone with thorough knowledge here? :
http://seekingalpha.com/article/625...end-12-31-07-earnings-call-transcript?page=10
Okay, thanks and the last question was you touched on this --if you don't do securitization, how much cash flow would you have to continue to run the business?
John Hupalo
Sure, I think we said in the remarks that, our current cash position will take us well into the next fiscal year and when the additional infusion comes from Goldman, which is expected in the coming months that it will take us a period longer than that. So we have a very strong cash position. As Jack alluded too, we are in a process of continuing our expense control and looking to reduce expenses even more, so that combination leaves us in a very strong position for foreseeable future.
http://seekingalpha.com/article/625...end-12-31-07-earnings-call-transcript?page=10
Okay, thanks and the last question was you touched on this --if you don't do securitization, how much cash flow would you have to continue to run the business?
John Hupalo
Sure, I think we said in the remarks that, our current cash position will take us well into the next fiscal year and when the additional infusion comes from Goldman, which is expected in the coming months that it will take us a period longer than that. So we have a very strong cash position. As Jack alluded too, we are in a process of continuing our expense control and looking to reduce expenses even more, so that combination leaves us in a very strong position for foreseeable future.
Quote from scriabinop23:
Reading this, this implies their liability exposure (unsecuritized loans) is significant versus their cash position, moreso than i see with the obvious unsecuritized 350m against their cash. Anyone with thorough knowledge here? :
http://seekingalpha.com/article/625...end-12-31-07-earnings-call-transcript?page=10
Okay, thanks and the last question was you touched on this --if you don't do securitization, how much cash flow would you have to continue to run the business?
John Hupalo
Sure, I think we said in the remarks that, our current cash position will take us well into the next fiscal year and when the additional infusion comes from Goldman, which is expected in the coming months that it will take us a period longer than that. So we have a very strong cash position. As Jack alluded too, we are in a process of continuing our expense control and looking to reduce expenses even more, so that combination leaves us in a very strong position for foreseeable future.
Right, but I thought they only took an impairment charge due to loans that were in the processing stage, but could not be completed because of TERIs liquidity issues.
In other words, I didn't think FMD holds any student loans on their own books, and that their expenses for the time being are payroll, rent, etc?
So, if that's true, they could literally run on a skeleton crew, with that mound of cash they have, even assuming the highly unlikely (IMO) event that neither government nor no other actors come forward to resolve the frozen student loan lending business before the next big rush of high school grads start lining up financing for fall 08 college?
Where do you see that their exposure is significant compared to their cash position?
"Of the $358 million of loans held for sale at UFSB, $346 million are student loans. The remaining $12 million are mortgages. All of these assets are carried at the lower cost or markets."
As per this balance sheet item, their exposure is limited. Even if its written down to 0, they are still ok.
"On the liability side the increase in deposits and education loan warehouse facility is related to the funding of Private Student Loans held at UFSB. The facilities are scheduled to expire in July and we are in the process of renewing it."
Deposits $ 146,893
Education loan warehouse facility 245,400
This is debt that will expire around July, FMD may have to pony it up, worst case. This could be a potential problem.
Would be nice to see what balance sheet information they have now... January was a long time ago!
"Of the $358 million of loans held for sale at UFSB, $346 million are student loans. The remaining $12 million are mortgages. All of these assets are carried at the lower cost or markets."
As per this balance sheet item, their exposure is limited. Even if its written down to 0, they are still ok.
"On the liability side the increase in deposits and education loan warehouse facility is related to the funding of Private Student Loans held at UFSB. The facilities are scheduled to expire in July and we are in the process of renewing it."
Deposits $ 146,893
Education loan warehouse facility 245,400
This is debt that will expire around July, FMD may have to pony it up, worst case. This could be a potential problem.
Would be nice to see what balance sheet information they have now... January was a long time ago!