Research reports

Research Reports and Articles

Learning to Roll with the Unexpected, American Securitization Journal, Winter/Spring 2011 (with Paul Jacob)

If the last five years have taught mortgage analysts anything, it’s the importance of expecting the unexpected — and being able to quantify the potential impact. Traditional credit modeling is one method of doing so. But there is another, complementary tool that can be employed: transition matrix analysis.

No Quarter Radio’s Sense on Cents with Larry Doyle–5/9/10 Show

The challenges on our economic landscape remain daunting. While employment and manufacturing may be stabilizing, the housing and mortgage markets remain mired with real issues.

The issues within housing and mortgages are at the base of our economic crisis encompassing both Wall Street and Washington. From structured transactions on Wall Street to financial regulatory reforms in Washington, the issues ultimately come back to housing and mortgages. I will discuss all these issues on Sunday evening from 8-9pm ET as No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Bill Berliner.

The Complex New World of RMBS Shortfalls, American Securitization Journal, Winter/Spring 2010 (with Matt Tomiak)

How to restructure the overwhelming number of troubled loans backing mortgage bonds remains one of the major challenges of the credit crisis. It’s not just that virtually no private-label residential mortgage-backed securities (RMBS) were structured with subordination levels sufficient to absorb current losses on their loan collateral, making even senior and super-senior securities subject to potential downgrades and writedowns. The other major issue is that multiple generations of deals were created and codified without sufficient guidance on how loan modifications should be treated. This frequently pits owners of different bond tranches against each other. Meanwhile, some solutions, including government-mandated programs, can bring bizarre and counterintuitive results for bondholders. Below we’ll examine issues arising from loans under consideration for modification under the Obama Administration’s Home Affordability and Modification Program (HAMP).


Loss Severities and the Lengthening Foreclosure Process, (with Paul Jacob)

This report will first address the fundamentals of the foreclosure process from the perspective of servicers and the investment trusts (or trustees).  We then look at some industry data on delinquencies and their transitions into either current or foreclosed loans.  In order to view the impact of a variety of factors on loss severities over time, we then create some simple illustrations showing severity estimations using two dissimilar products (subprime ARMs and negative-amortization Option ARMs) as proxies.  Finally, we discuss a variety of factors that complicate loss severity calculations and trends.


Option ARMs and the “Time Bomb”Asset Securitization Report, January 2010

The major risk for future OA performance is that recast-related payment shocks will overwhelm the resources of borrowers who had originally misrepresented their incomes but were nonetheless servicing their loans. I expect that the actual number of such loans will be modest.  HAMP-style modifications will not help troubled OA borrowers irrespective of the truthfulness of their income reporting,


The Questionable Future of Non-Agency LendingAsset Securitization Report, September 2009

The banking system’s collective balance sheet is not large or strong enough to support the upper tier of the housing market on its own. The Jumbo loan market will therefore remain dependent upon the ability of portfolio lenders to fund lending activities with reasonable rates and terms. This will leave the upper tier of the housing markets, vital to high-cost states such as California, vulnerable to the continued weakness of the banking industry.


The Interaction of MBS Markets and Primary Mortgage Rates, MBSpeak, February 2010 (with Anand Bhattacharya)

Consumer borrowing rates have become directly linked with capital market rates and flows, as well as investor demand for the associated securities. In turn, mortgage originators have increasingly utilized the capital markets to fund their lending activities and channel the proceeds into the housing markets.  This paper will examine the links between the costs of residential mortgage credit and the pricing of capital market instruments. It will demonstrate how levels in the capital markets are translated into loan pricing, and how alternative execution options are weighed.