I watched every documentary on the financial crisis and CDOs, tried to understand Wikipedia etc.. but still not getting the full picture as examples seem to be limited (or complicated).
Say Local-Bank-A starts providing mortgages to US subprime, big marketing campaign and sweet offer 100% mortgage, offer start 1 Jun and finish 31 August, so a 3 month marketing window. The sales and marketing guys believe they are going to close 10,000 mortgages with an average loan of US$100,000.
Where they do they get the money from first to finance 10,000 mortgages. Do they borrow US$ 1 billion and from where? When they borrow from other banks what collateral do they accept?
Okay 1st September comes round and Local-Bank-A has sold all expected 10,000 mortgages, exhausted the 1 billion and now wants to sell it on to Goldman Sachs etc.. What do they charge to sell it? How much money is in selling US$1billion of 100% mortgages to the wall street investment banks?
So they sell, they get the US$1billion back plus whatever profit and settle their original loan of 1 billion. They make some money out of this and start the process again?
Goldman Sach now has 1 billion of mortgages on their books and works quickly to CDO this and shift it on. How much were they making on this as obviously they had shell out at least 1 billion for them (as Local-Bank-A wouldnt be selling for a loss)?
When the bank sell these mortgages on who is responsible for collecting the monthly payments and handling redemptions etc..? Do US mortgages have a separate handling fee to a 3rd party entity like $10 a month? Who answers the phone when changing repayment amounts etc..
I talk in the current sense but obviously I mean 2006/2007.