Gee, the last one was so much fun I think I’ll do another! Let’s look at “Bear Stearns Asset Backed Securities Trust 2005-1″.
On August 24, S&P released the following:
Standard & Poor’s Ratings Services today lowered its ratings on seven classes from Bear Stearns Asset Backed Securities Trust’s series 2001-3, 2005-1, 2005-2 and 2005-3 transactions (see list).
The lowered ratings reflect pool performance that has caused actual and projected credit support for the affected classes to decline considerably. All four transactions have experienced losses that have eroded overcollateralization (O/C) to levels that are significantly below their targets. Furthermore, delinquencies have escalated over the past six months. For series 2001-3, losses have, on average over the past six months, been approximately 2.10x monthly excess interest. For series 2005-1, losses have, on average over the past six months, been approximately 3.73x monthly excess interest. Severe delinquencies (90-plus days, foreclosures, and REOs) for the transactions, as a percentage of the current pool balances, range between
approximately 17.09% (series 2005-1) and 13.40% (series 2001-3). Realized losses for the transactions, as a percentage of the original pool balances, range between approximately 9.20% (series 2001-3) and 1.33% (series 2005-3).
These performance trends have caused projected credit support for the transactions to fall well below the required levels. Standard & Poor’s will continue to closely monitor the performance of these transactions. If the transactions incur further losses and delinquencies continue to erode projected credit support, we will take further negative rating actions.
Subordination, excess interest, and O/C provide credit support for the two transactions. The underlying collateral backing the certificates consists of both fixed- and adjustable-rate mortgage loans.
Bear Stearns Asset Backed Securities Trust
Residential mortgage-backed certificates
Series Class To From
2001-3 M-2 BB A
2001-3 B B BBB
2005-1 M-6 BB BBB-
2005-1 M-7 CCC BB
2005-2 M-7 B BB
2005-3 M-6 B BBB-
2005-3 M-7 CCC BB
… which looks pretty horrific. But now let’s look at ALL of BSABST 2005-1:
US$395 million asset-backed certificates, series 2005-1
Class Maturity Date Rating Rating Date
A Mar 25, 2035 AAA Feb 24, 2005
M-1 Mar 25, 2035 AA Feb 24, 2005
M-2 Mar 25, 2035 A Feb 24, 2005
M-3 Mar 25, 2035 A- Feb 24, 2005
M-4 Mar 25, 2035 BBB+ Feb 24, 2005
M-5 Mar 25, 2035 BBB Feb 24, 2005
M-6 Mar 25, 2035 BB Aug 24, 2007
M-7 Mar 25, 2035 CCC Aug 24, 2007
R-I Mar 25, 2035 NR Feb 24, 2005
R-II Mar 25, 2035 NR Feb 24, 2005
B-IO Mar 25, 2035 NR Feb 24, 2005
The SEC ID for this trust is 333-113636, for those who wish to see all the gory detail. Tranche sizes, from the prospectus on SEC / EDGAR are (this is SEC document 0000911420-05-000084.txt : 20050216) are:
Class A : $313,746,000 (pays LIBOR + 0.35% before optional termination / +0.70% afterwards)
Class M-1: $37,689,000 (+0.70% / +1.05%)
Class M-2: $18,549,000 (+1.40% / +2.10%)
Class M-3: $4,341,000 (+1.60% / +2.40%)
Class M-4: $3,946,000 (+2.20% / +3.30%)
Class M-5: $2,960,000 (+3.00% / +4.50%)
Class M-6: $4,538,000 (+3.50% / +5.25%)
Class M-7 was not offered in the prospectus. R-I and R-II are “residual interests in the real estate mortgage investment conduits established by the trust”, and were also not offered. B-IO gets all the Excess Spread. None of these last three classes had a stated principal value; I’m not going to tear apart the prospectus analyzing them because I don’t really care a lot how they work … I’m just after the principal values here!
The “optional termination” becomes effective “when the stated principal balance of the mortgage loans and any foreclosed real estate owned by the trust fund has declined to or below 10% of the stated principal balance of the mortgage loans as of the cut-off date”. At this point EMC Mortgage corporation could purchase all the assets.
At any rate, it should be clear that – while downgrades are always bad, and to be deplored by all right-thinking people – the downgrades that sounded so awful at the beginning of this post lose a lot of their ability to terrify when put into perspective.
Perspective is what’s needed when thinking about sub-prime … and I can’t provide it. I’m not a specialist, and I think a specialist would need a pretty good database to get it. What I really want is a transition study that has dollar figures attached, not just number of ratings. It would be nice, too, if interest rates could be attached to such a study … because, well, gee, the guys in the downgraded class M-6 were getting LIBOR + 350bp (and still are, since the issue is not in default)!
I’ll keep my eyes out, however, and whenever I see something interesting, I’ll post again.
Update 2007-09-18: I became involved in a discussion at Econbrowser in which this issue came up. In the course of the discussion I retrieved a bit more information from the prospectus, which I shall reproduce here:
The following table summarizes certain characteristics of the mortgage loans as of the cut-off date:
Number of mortgage loans……………………3,527
Aggregate principal balance…………..$394,649,130
Average principal balance………………..$111,894
Range of principal balance………$1,041 to $800,000
Range of mortgage rates……………0.00% to 16.50%
Weighted average mortgage rate……………..8.032%
Weighted average combined loan-to-value ratio……………………84.50%
Range of scheduled remaining terms to maturity……….9 months to 361 months