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The Journal of Structured Finance

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Investors Beware: Flaws in the Residential Mortgage Securitization Process

Laurie S. Goodman, Roger Ashworth, Brian Landy and Lidan Yang
The Journal of Structured Finance Fall 2010, 16 (3) 88-98; DOI: https://doi.org/10.3905/jsf.2010.16.3.088
Laurie S. Goodman
is a senior managing director at Amherst Securities Group LP in New York, NY.
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  • For correspondence: lgoodman@asglp.com
Roger Ashworth
is an MBS analyst at Amherst Securities Group LP in New York, NY.
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  • For correspondence: rashworth@asglp.com
Brian Landy
is a senior vice president at Amherst Securities Group LP in New York, NY.
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  • For correspondence: blandy@asglp.com
Lidan Yang
is a vice president at Amherst Securities Group LP in New York, NY.
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Abstract

This article focuses on some of the less discussed flaws in the securitization process. In particular, the authors focus on: 1) the enforcement of representation and warranty violations, 2) defects in the deal closing process, and 3) defective transaction surveillance and reporting. The authors make the case that, even if you knew the prepayment rates, default transition rates and severities, you could not necessarily determine the cash flows and hence the yield on the security. Even if the deal modeling is correct (and, as the authors have shown, there can be issues) and the documents are internally consistent, there is a total lack of transparency in reporting on modifications and liquidations. More irritating, it is very difficult to tie out the cash coming into the deal with what is actually distributed to investors.

TOPICS: MBS and residential mortgage loans, CMBS and commercial mortgage loans

  • Copyright © 2010 Amherst Securities Group LP. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Structured Finance: 16 (3)
The Journal of Structured Finance
Vol. 16, Issue 3
Fall 2010
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Investors Beware: Flaws in the Residential Mortgage Securitization Process
Laurie S. Goodman, Roger Ashworth, Brian Landy, Lidan Yang
The Journal of Structured Finance Oct 2010, 16 (3) 88-98; DOI: 10.3905/jsf.2010.16.3.088

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Investors Beware: Flaws in the Residential Mortgage Securitization Process
Laurie S. Goodman, Roger Ashworth, Brian Landy, Lidan Yang
The Journal of Structured Finance Oct 2010, 16 (3) 88-98; DOI: 10.3905/jsf.2010.16.3.088
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  • Article
    • Abstract
    • COLLATERAL: REPRESENTATION AND WARRANTY VIOLATIONS
    • DEFECTS IN THE DEAL CLOSING PROCESS
    • MODELING INCONSISTENCIES: THE INTEX REVIEW LIST
    • DEFECTIVE TRANSACTION SURVEILLANCE AND REPORTING
    • LACK OF TRANSPARENCY IN MODIFICATIONS
    • INABILITY TO RECONCILE THE CASH FLOWS
    • LACK OF TRANSPARENCY IN THE REPORTING OF LOSSES
    • CONCLUSION
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

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