Wednesday, March 28, 2007

MBS-S-3 summary

I had a thought of doing something that goes above and beyond my typcal nerdiness--The time requirement is great, so I may do it very selectively. That thought was to take all of LEND's securitizations an line the up so that you could see the evolution of the characteristics affecting these loans. Here's what I was thinking about in terms of format.

Unfortunately, the earlier formats were different, and these docs are a little cumbersome, but I plan to complete this for a few offerings. Here's something worth noting, in looking at the 2003-2 securitization, the % of baloons was only 5.46%. Also, the average loan size was 153.2K the overall pricnicpal was $416.8M--less than half of what you see here.


russell120 said...

Given Beezers current problems in the Charlotte area, that would be an interesting subject matter as well.

What is the tranche structure at time? I should note, that generally pre-payment risk is viewed as a bigger risk within the securitization industry then default risk. Pre-payment risk comes when interest rates drop, and people pay off their mortgage and get new loans. If the loans where made with sane lending criteria, they would be correct to worry more about this risk.

Leisa said...

Russell, you are correct that prepayment risk is a consideration and like the other variables, it appears that these are modeled in the underlying securitizations.

Whether or not it is a greater risk than the default risk goes more toward the actual experience in the securitization. The overcollateralization target, if there is one for the securitization acts as a shock absorber for some of the underlying dynamics. Could be that prepayments and defaults balance themselves out entirely!

I don't pretend to know how the mechanics work, but you bring up a good point.