YouSaid · the spoken record

Sean Dobson

lines on the record: 117
first: 2024-03-07
most recent: 2024-03-07
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I have one in my office now. I have a helmet from Beware of Falling Home Prices, and I have one for our new construction division where we build entire neighborhoods. And that's really to sort of bring it all together with this core competency and analytics, and we're probably the only, maybe not the only, but I don't know of a competitor. We're the quant shop in real estate and the quant shop in physical assets. So with that core competency, that's the reason we're in the single family rental business. So you follow that all the way through. There were amazing trades to do, amazing opportunities, wild, scary things to do. I got to spend a lot of time in DC consulting on the response to the financial crisis and trying to sort out sort of what was really going on. And what we figured out in 2009, really, when we started buying homes, is that we made the bet that, I mean, it wasn't a very exotic bet, but we made the bet that the subprime mortgage market wasn't coming back at all.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“So the mute by the time the music stopped, it was pretty apparent. But we had it, there's a big industry conference called AFS that happens twice a year. And at the 2005 conference, it's kind of wild. So these big brokerage firms get together and they set up a convention like plumbers and they all give out Choshkis and then they give presentations in their business. And so we participated in this. Our Chotchky that year was a hard helmet, was an orange hard hat. And it said, beware of falling home prices. And our whole thesis was that was what I'm trying to describe, which is some great.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“0506 it started to turn over and our thesis on a lot of these mortgages and the very very exposed securities within these structured products wasn't that home prices needed to go down it was that the only way that the loan was going to perform If the consumer could refinance out of it quickly. So, you really just wanted the music to stop, right? Or if, I mean, this whole thing was going to come down if the music stopped. Right.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“They were more polite than that, but they didn't invest. So there were very few people that thought. Because at that time, the trailing credit performers for U.S. single family mortgages was impeccable.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a wild ride. It was a wild ride because by the time you got, so in 2005, we went on a roadshow trying to tell people what we had learned. And there wasn't a lot of reception. We literally.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“So that sort of put Amherst on a different pact because prior to that our core business model was investment banking brokerage, market making, and underwriting. By the time we got to 2005 and figured out that there was such a large sector that was so mispriced, we started hedge funds, opportunity funds, we took submandates from the big global macro hedge funds, and we started to build our model around investing in our research, co-investing our research, and earning carried interest in sort of big complicated trades that we thought we had figured out. Maybe the market hadn't priced something properly.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. So you look back at these things, how could it happen? But we're lone level people, right? So we don't see the mortgage-backed securities market as a market. We see it as, like I said, about 50 million assets, and we're modeling up the value of every home in the country every week, basically. And we're modeling up the value of every mortgage in the country, and we're modeling the value of every derivative of that mortgage, the structured products, and so forth. So through our lens, it was like, okay, we've made these financial experiments. The underlying real estate has become very volatile. So you could construct trades that had very, very low premiums to sell this volatility, to basically join the consumer on their side of the trade, which is, in essence, buying insurance on the bonds that were exposed to these great risks. So we did that for a lot of the markets. So a lot of the headline names you see, a lot of the stories you see about the financial crisis, a significant number of those investors, we were helping in security selection, modeling, and analytics.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Dramatically. Then, as we dug in and dug in and dug in, we realized that there were a lot of loans that were really experiments. There were financial experiments where the borrower hadn't been through due diligence. The LTV was very high. The underlying risk of the home market was very high.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And so we thought, okay, we've been pricing complicated options our whole career. So let's just price the option to default as if it is a financial option. When you do that, and then you looked at the types of loans that are being originated. And this is where Amherst story is a little different than some of the stories you've seen around the financial crisis. What we figured out was that the premium that you were being paid as this option seller was way below the fair market price of the premium, meaning that the default risk you were taking was way higher than the market had appreciated. So they were underpricing default risk.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“You're probably not supposed to pay is the position we took. So through that lens, we said, okay, let's price these securities. And we found a bunch of interesting things. For example, we found that the follow-on rating surveillance for mortgage-backed securities doesn't follow the same ratings methodology that the initial rating does. So over time, the risk composition of the pool would change dramatically. So think about 2003, home prices had gone up a lot from 2000. So mortgage position in 2000 were way more valuable in 2003 than they were when they originated because they weigh less credit risk. Not the same thing couldn't be true as you went forward in time. Each subsequent vintage became riskier and riskier and riskier. As prices went up because rates had gone lower and lower. And that's the way we thought about it. So the way we think about it, when you make someone a loan, this is sort of the...”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Making markets and banking and really making these a core part of our business. At that time, this market was about a third of all mortgages were the ones where the credit risk was going into the capital markets. So that little detour was in 2003. And we found a couple things. We modeled defaults the same way we modeled prepayments, which is an option for the consumer to not pay. Most of it, rarely here it described that way. Well, it's a unique approach, right? And it was unique at the time. And so we thought there were conditions under which the option probably should be exercised. If you have a 200,000 dollar home and a $100,000 mortgage and the consequence for not paying is ding on your credit report.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Tell us about your experience in the 2000s. What did you see coming? Yeah. So from the late 80s until the really the late 90s, we were focused primarily on prepayment related risk in agency mortgage securities. By the time you get to the early 2000s, Freddie Mac, Fannie Maj and May were losing market share. A lot of mortgages were coming straight from originators and being packaged into what later became the private label securities market. So as part of our just growth, we attacked that market. And up until that moment in time, we didn't spend a lot of time on credit risk in mortgages. We didn't really have to model credit risk because that risk was taken by the agencies. But in these private labels, you had the market was taking the credit risk. So we took the exact same modeling approach, which is loan level detail, borrower behavior, stochastic processes, options-based modeling. And we said, let's just take a little detour here and make sure we understand the credit risk of these things before we sort of start making.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Research, quite a lot of modeling, quite a lot of data to actually keep up with the mortgage market. It's really 40 million individual contracts, 40, 50 million individual contracts, and a million different securities. So it takes quite a lot. We've built an interesting system to allow you to sort of monitor all that and price it in real time. So if you're running a desk in the 2000s and you're looking at mortgage-backed, then you're looking at secureized product, one would think, especially from Texas, as opposed to being in the thick of Wall Street, you might have seen some signs that perhaps the wheels are coming off the bus.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“Running the trading desk, you're running primarily mortgage-backed securities. Mortgage-backed security. Anything else, swaps, derivatives, anything like that? So back then it was really just mortgage-backed securities and structured products that were derivatives of mortgage-backed securities. We sort of carved out a name for ourselves in quant analytics around mortgage risk. And that's still a big core competency of Amherst is understanding the risks of mortgages are kind of boring, but they're also very complicated. The borrower has so many options around when to refinance, how to repay, if to repay. It takes quite a lot of”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“So after that, I later was given some opportunities to join the research team and then took over the research team and then took over, eventually took over the trading platform. And then by 1994, a group of us had started our own business. And that's the predecessor to Amherst, which we bought in 2000 and have been running it since then.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“It was happenstance. I took a temporary job at a brokerage firm in Houston, Texas the summer after high school, between high school and college. Really as the office runner runner around picking up people's dry cleaning, grabbing lunch, opening the mail, that sort of thing. And I took the job really because a friend of ours, a friend of the family's had worked there and just said what an interesting sort of industry it was. This is back when mortgages were sort of a backwater of the fixed income market. So they were traded a little bit like muni bonds. They're not really well understood, not well followed. 1990s or before? 1987. Wow. 1987.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I answered questions of when did you graduate? And so I said I didn't graduate and then it was your what degrees did you achieve? And I said none. And then I think the question was, what were you doing or what were your interest in? So I was working for a living. But I didn't go to college. Did not go to college.”
2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source