Commercial Loans Blog

Just How Bad Were These Subprime Home Loans?

Posted by George Blackburne on Fri, Feb 27, 2009

The Recovery Rate is Horribly Low

The Financial Times just published an article about the likely recovery rate of subprime residential mortgage-backed securities. Of the $450 billion in securities analyzed, $305 billion of that paper was already in default.

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Of that $305 billion that was already in default, $102 billion has already been liquidated. The recovery rate? The recovery rate on the mezzanine tranches was less than 5%. This is not terribly surprising. A mezzanine tranche consists of a pool of higher-risk B-pieces.

But what about the mortgage bonds backed by the AAA-rated tranches? The recovery rate so far has been just 32 cents on the dollar. Yikes.

Topics: subprime loan