September 3, 2006

For Sale By al-Queda

A for-sale-by-owner Web site that is registered to a loan officer in Ohio also contained a cache of information about a suspected al-Qaeda operative captured in Pakistan last year and an Islamic militant movement.

Pages embedded within The For Sale By Owner Association Inc. Web site, at www.fsboa.com, contained Arabic writings attributed to Abu Musab al-Suri (al-Suri translates as "The Syrian"), who is also known as Mustafa Setmarian Nasar. Nasar was reportedly arrested in Quetta, Pakistan, in November 2005 and is rumored to be in U.S. custody, though his location remains a secret.

Alan Isham, the creator of the Web site who is a loan officer for 1st Metropolitan Mortgage in Pepper Pike, Ohio, said he hadn’t added anything to the Web site for two years and had nothing to do with the Arabic-language materials at the site. "Somebody hacked into the site," he said. The www.fsboa.com Web site was registered in Isham’s name in 1998.

"I just had no idea it was even there. I haven’t uploaded anything into the site for over 24 months. It’s kind of a dead site."

The entry page to the For Sale By Owner Association Inc. site included links to property search, mortgage information, membership information and chat pages, and invited sellers to "post ads instantly" and to "advertise your property for free," though many of the links at the site were not functioning. There were no links from the site’s home page that connected directly to the Arabic content at the site.

Isham said he was told by government officials earlier this year not to take down the Web site.

"I was actually contacted by government officials and asked about (the site). I was asked to leave it be because they were monitoring it," Isham said Thursday. But the attention about the site is endangering his reputation, Isham said, adding that he has asked to shut the site down. As of this morning, the www.fsboa.com site was not active.

The site had contained links to dozens of pages of text and images of a sword and a quill pen. The Islamic militant materials within the Ohio-based FSBO Web site were publicized earlier this year in a March 28 article by the Jamestown Foundation, a public policy group that researches events and trends in societies considered "strategically or tactically important to the United States."

The foundation cited a statement by Nasar at the www.fsboa.com/vw Web site and reported that Nasar is "one of al-Qaeda’s top ideologues" and "has proved to be the movement’s most significant strategic brain."

In late August, conservative FrontPage Magazine and author and counter-terrorism consultant Laura Mansfield published information about the possible terrorist connections to the Ohio FSBO site on their Web sites.

U.S. officials have said that Nasar was a trainer at Osama bin Laden’s camps in Afghanistan. A Spanish citizen, Nasar was named in a Spanish indictment in 2003 for alleged terrorist activities connected to al-Qaeda. He also had spent time in London in the mid-1990s before traveling to Afghanistan, according to reports. A message last month attributed to Nasar called upon militant groups across Europe to "awaken" and "move fast" to carry out more terror attacks against Britain, according to news reports.

A Google Language Tools Arabic-to-English translation of materials that were posted at the www.fsboa.com/vw site appears to be a statement by Nasar refuting media reports and allegations by the U.S. government about the extent of his involvement in terrorist activities.

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US housing finance - Prime or not so prime?

The system of US housing finance has changed profoundly in recent years. Despite the dominant role of the government-sponsored housing finance agencies, non-agency mortgage underwriters account for a steadily increasing share of US housing finance. While the agencies specialize in the underwriting of mortgage loans to prime households, growth in non-agency lending has been to non-prime borrowers. This implies lending not only to borrowers with somewhat blemished credit histories, but also to those unable or unwilling to either finance required down payments with own funds or document their sources of income.

The securitization of non-prime housing loans represents a significant change for one of the biggest and most important financial markets in the world. Most US residential mortgages are packaged and resold in mortgage-backed securities (MBSs), and foreign investment in these securities has soared. As with the restructuring of mortgages and the secondary sale by the housing finance agencies of pass-through securities, non-prime loans have also come to be routinely incorporated into pass-through securities via a Similarly structured process. However, in contrast to agency-backed securities, which are exposed to prepayment risk but protected against loan defaults by guarantees, investment in non-agency securities involves exposure to both prepayment and default risk. In this article, we argue that the significance of this additional risk has been disguised in recent years by housing price appreciation. In consequence, a turn in the housing market might remind holders of these securities of some of their downside risk characteristics.

The remainder of this special feature  is structured as follows. The next section presents a broad overview of recent developments in MBS markets. The section which follows focuses on innovations in mortgage contracts, the employment of credit scoring measures to calibrate default risk, and new challenges in forecasting prepayments. We finish with some brief concluding remarks.

Recent developments

Mortgage-backed securities are now well established as one of the largest and most significant financial markets in the world, as well as the most prevalent form of securitization. More than half of all US residential mortgages are incorporated in MBSs. Since the mid-1990s, the share of MBSs in US bond markets has surged to nearly one third of the total outstanding and has remained at a high level (Graph 1, left-hand panel). The market has also become more global: the stock of foreign investment in US mortgage securities has increased more than fourfold since 1990, to nearly $1 trillion. Although much of this foreign investment is accounted for by holdings of agency-issued straight debt securities, recent survey data suggest that foreign investors have assumed sizeable stakes in MBS investments as well.

 

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