The MBS House Of Cards
Credit rating agencies grade mortgage pools up-and-down every day. To get a sense of what's going on, here is a May 20th example from Fitch. "The negative rating actions, which affect $526.8 million of outstanding certificates, are taken due to the continued deterioration in the performance of the underlying collateral."
"In the eight transactions that experience downgrade actions, the high level of losses incurred has led to substantial and rapid decline in credit enhancement, particularly in the form of overcollateralization (OC). In the most severe examples, OC has been exhausted and the most subordinate certificates have suffered principal write-downs."
How about the good news, the 'affirmations' of credit? "The affirmations reflect credit enhancement consistent with future loss expectations and affect approximately $1.49 billion of outstanding certificates. In addition, the affirmation..reflects a guaranty provided by Freddie Mac.. reflect a guaranty provided by Fannie Mae..reflect a guaranty provided by XL Capital Assurance Inc.."
Where is this collateral? "All of the mortgage loans in the aforementioned transactions were either originated or acquired by Long Beach Mortgage Company. The mortgage loans consist of fixed and adjustable rate subprime mortgage loans and are secured by first and second lien mortgages or deeds of trust on residential properties."