This paper describes the current state of the subprime mortgage market and provides an historical context for the market dynamics that led to the present environment. The authors introduce a model to estimate the market’s expectations of future losses on pools of subprime mortgages, using the market prices of the ABX indices. The model shows that the market is expecting roughly 30 percent losses on 2007 originated loans, 20 percent to 25 percent on 2006 originated loans, and around 15 percent on 2005 vintage loans. At these levels of losses, most BBB-rated securities are wiped out in all vintages, and the securities should be valued as interest-only (IO) values (no return of principal). Many newer A-rated and AA-rated bonds are also expected to take losses. Nevertheless, even though correlations amongst security performance are high, there is some dispersion, and pockets of better-performing bonds do exist, which can have impact on the valuations of super-senior CDO tranches.
1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home