dcxavier

WaMu Alt-A Pool Deteriorates Further

Hi dlaw!

Do you really how these securitizations work?

Tranche A1 is 50% of the securitization. For a buyer of the A1 to lose on principal, 50% of the houses would have to be a 100% loss, totally worthless. Or 100% of the houses would have to be a 50% loss. Or something in between. Not even the most bearish here-we-go-to-depressi... individual has stated things will get that bad. Already over 5% of these loans are off the books, all the principal from them has gone to the A1 holders.

WaMu Alt-A Pool Deteriorates Further

This securitization probably isn't as bad as you might believe. I'm guessing that this is a pool of primary Alt-A Option ARM's. As primary loans, they were mostly issued at 70-80% LTV.

Now about 25% is NPA, so they are collecting about 75% of the possible interest. That should be enough to cover through the A4 and probably through the A5 and into the first mezzanines. Now as far as principal coverage goes, you need to get over 100% LTV on a loan before that becomes a risk. Then, it's on a loan by loan basis. A1 through A4 should be golden, A5 is on the bubble.

So where's the big problem? It is at WM. I suspect a vast majority of these loans have seconds behind them. WM didn't generally securitize the seconds. Each of these defaulting loans, you're probably looking at close to 100% wipeout of the seconds. If you figure $100M in seconds behind these primaries, that could turn into $20-30M loss or even more. Ouch!

Tranche A1 is still AAA in my book, that's half the package. But when you get to M-1 and below, that's not investment grade.