What Is Wrong With Re-Securitized MBSs

To see what is wrong with re-securitized MBS, we need look no further than Credit Suisse Mortgage Capital's recent CSMC 2009-10R deal.

Its collateral is 2242 loans, all ARM. 29.7% are in California, 5.8% were taken for investment. 99.6% of them were originated in H2'06 and Q1'07, at the trough of mortgage origination's standards. The performance of its collateral is catastrophic:

• Loans delinquent for 60 days or more represent 57.34% of collateral
• Loans with a loan-to-value between 80% and 139% are 57.96% -- not surprisingly, almost the same number as the fraction of households who stopped making payments! (Remember, an LTV above 100% means that you owe the bank more than what your place is worth.)
• 91.8% had FICO score at or below 700, 68% below 651.
  
• 11.1% of these loans currently pay usury interest rates of 10% or more! (Their ARM rates probably reset.)

But the worst may be yet to come for this security: 10% of the loans faced resets on their mortgages last month (September); almost 8% will be reset in December, then 19.7% more in Jan, and 23% in February! While again already 57.34% of the loans are late on their payments! I have no idea what this paper can be traded at, but probably not much.