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.
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.