First read this.
Scratch(ed) and Dent(ed) RMBS – Posted by Tracy Alloway – Here’s something that might have escaped your radar during Christmas week — a mass downgrade of so-called `Scratch and Dent’ RMBS deals by ratings agency Fitch – FT Alphaville
Here are additional thoughts from MNC reader, Nom De Plumber …
Implications, especially for whole-loan portfolios:
1. Seasoned cohorts have been converging with newer cohorts, as negative equity and strategic borrower behavior trump all.
2. Seasoned mortgages are really just failed extensions/modifications.
3. Cure rates for even seasoned mortgages will continue to decline – meaning that 30-day delinquencies are increasingly just inevitable defaults.
4. Historical roll-rate default modeling is an insufficient credit predictor, as economic policies create incentives for borrowers to game for cheap or free home usage.
5. Scratch-and-dent loans should be priced heuristically per observable severities, not econometric projections of eventual re-performance or refinancing/sale prepayments.
Nom De Plumber is a Nom De Plume.