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    • WaMu Alt-A Pool Revisited [view article]
      The author either doesn't understand mortgages or is trying to mislead readers...take your pick but his comments are worthless. The "AAA" tranches of this pool have over 20% credit enhancement (he doesn't mention that fact). That means that the pool must expereince over 20% in losses (which is not the same as defaults) before the "AAA" rated bonds experience a single $ dollar in losses. Taking the author's assertion that "it would not be surprising to see 30% of this pool get to REO status", even a 50% severity rate would result in only 15% of losses for the pool. The more risky, lower rated subordinated bonds would absorb the losses...and the investors in these risky bonds knew (or should have known) the risks they were taking.

      (BTW, severity rate is simply the amount of loss after you factor in the recovery from selling the house. For example, a $300,000 loan on a home sold in REO for $200,000 would have a severity of 33% ($100,000 loss divided by $300,000 loan).
      Mar 27 01:46 PM
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