RMBS Limbo Losses ll (May 2011)

In valuing secondary market RMBS over the years, R&R discovered many servicer reporting irregularities on collateral losses. At year-end 2011, we decided to generalize our observations on the total market. We presented our findings on January 25, 2012, in “RMBS Losses in Limbo: As Bad as They Seem, The Reality May Be Much Worse.” Our press release was picked up in Naked Capitalism, “Yes, Virginia, Servicers Lie to Investors, Too” and a number of other publications.

R&R received many inquiries about our research conclusions. These are the basis of a follow-on piece, available from today, that provides additional detail on our analysis and findings. In our report, we demonstrate the application of limbo loss analysis to four transactions:

  1. Countrywide ABS 2006-SPS2
  2. MASTR Asset Backed Securitizations Trust 2006-HE
  3. Structure Asset Securities Corp Series 2006-S4
  4. Asset Backed Funding Corp 2006-OPT3

We draw the following key conclusions:

  • Limbo losses arise from timing mismatches in the amortization and liquidation of nonperforming mortgage loans.
  • While some limbo losses are a natural artifact of the mortgage servicing process and can be manually reconciled, a significant number of limbo losses in the years 2005-2007 (and some during 2003-2004) appear to be strategic, permitting the servicer to prefer some liability holders over others without easy detection.
  • Our small sample of reconciled transactions did not significantly alter our original numbers–$175 MM of limbo losses due to timing differences between assets and liabilities and $125 MM of limbo losses due to a build up in the trust of non-performing loans that are not being liquidated.

Please contact Iuliia Palamar (iuliia.palamar@creditspectrum.com) if you would like to receive a copy of Losses in Limbo – February 2012.

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Comments (1)

  • avram

    |

    please see how orix still money from cmbs

    Reply

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