Peter Martin

Consensus Subprime Mortgage Loss Estimates: Mathematically Impossible?

Leverage! Is your analysis taking into account CDO squared or cubed structures? Additionally, you're assuming that these indexes are complete representations of the market. I don't know the exact composition of the index, but vintage and product would be key here. I know of several deals where the cumulative loss percent is over 25% of the total balance as of closing. These are not outliers. Consider deals that are backed by home equity loans (typically denoted by "HE" in the deal series name).

White House Pushes Mortgage 'Covered Bonds'

Most MBS bonds in the US have coupons already capped at the weighted average coupon of the collateral. If the ability of the collateral to make timely interest payments to the bondholders decreases (as measured by the weighted average coupon of the collateral), the coupons on the bonds will be set to a lower rate or capped. This is a common feature in many deals that decreases the possibility that bonds will not receive their accrued interest. I believe a very similar if not identical structure would be used for covered mortgage bonds because an issuing company would not want to be on the hook for mortgagees delinquent payments.

What China's Stock Market Implosion Means for Oil

Does this analysis account for the capped prices that Chinese consumers pay for oil?