Trading Strategy

Post date: Apr 17, 2011 3:10:22 AM

After the banks make the loan modification, households face lower payments for roughly 5 years. After this 5 year grace period, payments start to rise again. Enter Lender Processing Services (LPS)...

The LPS knows who had a modified mortgage, and what the terms of the modification were. The LPS data can be used to track down the modified loans and find out who owns them.

With LPS's data on the modification terms, you can estimate which loans will go bad and when they are likely to go bad. A well timed bet should do the trick.

Key Question: How easily can one bet against these bad modifications, and what is the cost?