by Matthew Tomiak and William Berliner

Originally published in American Securitization Journal, Winter/Spring 2010

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).

Download entire article

Copyright 2010 American Securitization Journal, Winter/Spring 2010.  All rights reserved.