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Legacy Second Lien Deals

For Non-Agency Legacy RMBS, we track 219 second lien deals with $6+ billion in unpaid principal balance. If you are interested in these second lien deals, we have included a very detailed spreadsheet on losses, recoveries, severities and a number of other performance statistics. This spreadsheet quantifies the effects of subsequent recoveries on loss severity. Our analysis also discovered chargeoff /liquidated loans with subsequent recoveries in excess of total losses, thereby paying more to the trust than the outstanding UPB at liquidation. Upon reviewing the historical data, we believe this is a servicer/trustee error.

Are severities running lower than expected? On a few deals YES, and on many other deals, the answer depends on how you calculate severity. If you factor in subsequent recoveries, then overall the 2006-07 vintage deals had a drop in severity around 30 percentage points. Our spreadsheet will show the effect on each deal. Much of the recovery is due to rep & warranty settlements, but some is actually due to servicers doing their job. With subsequent recoveries becoming more significant, investors need to decide to a) include subsequent recoveries in projected severities or b) use a separate subsequent recovery vector.

For most second lien deals, the weighted average loss severity at liquidation/chargeoff is approximately 100%. However, a few deals have surprisingly lower severities. For example, over the past 12 months, CWL 2006-S5 had a 48% loss severity for liquidated/chargeoff loans, which we confirmed using Remittance Statements. For this deal, the 12-month severity has been consistently in the 40s since the beginning of the year. However, factoring in subsequent recoveries, the 12-month Loss Severity drops to -10% (see page 3).

How is Performance? On page 2, you will find a chart showing some critical performance statistics by vintage over the past 4 years. On average, 83-86% of all loans have 24-month perfect payment history, with 89-96% having never been seriously delinquent over the past 24 months. Voluntary CPRs are up from last year and are now in the teens and CDRs continue to decline and are now in the low to mid-single digits. Current to delinquent roll rates have steadily declined and of course, these deals generally have a higher gross WAC than any other legacy product.

Charts and more charts: On pages 4 through 14, you will see various deal-level charts sorted in numerous ways, which highlights the statistics we feel are worthwhile to know. These charts are subsets of the data found in the spreadsheet.

If you care about second lien deals, then spend some time with our spreadsheet.

Contact us at 203-276-0672 to become a client and access all reports and attachments.

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