Some Years Produced Many Sour Mortgage Conduits: Kroll

When the KBRA analysts grouped the failures by the year the conduits came to life, they found that the conduits originated in 2004 or earlier all had losses under 6% of the original loan balance.

Conduits with origination years from 2005 through 2008 all had losses, or totals of actual losses and projected losses, over 10% of the original balance. The analysts are expecting the failure rate for the 2008 vintage to be about 16%.

Conduit makers used “credit enhancement” processes to get slices of conduit deals up to a high rating level starting in 2005, and that, questionable performance projections, and high loan-to-value ratios seem to account for many of the problems with the 2005-2008 vintages the analysts write.

Within each origination year, the transactions that looked as if they made more financial sense from the start generally had lower lifetime losses, the analysts write.

Resources

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