I’m a jack of all trades, and master of none. Worked for a few years doing mortgage insurance modeling, a couple of years doing secondary market stuff, a couple of years doing commercial stuff. That’s why I have a pretty good feel for how subprime MBS was structured before the current boom, but don’t claim to have more than a hazy guess about how it’s structured currently. Does mean I keep up with the industry rags, National Mortgage News, Inside Mortgage Finance, etc.
The numbers I posted were for illustration only. Don’t make your financial decisions off of those – do the research. But when I was playing with Standard and Poors Levels software a few years ago I know that a portfolio of loans with even a few blemishes needed a lot of support to get AAA. A normal sort of prime pool, with FICOs in the high 600s and above and 70%-90% LTV (over 80% with insurance) started as a BBB, or maybe a single A if the scores were really good, until you added enhancements like subordination and pool insurance.
MBS structure is no great mystery. The rating agencies talk about it on their websites. Any good university library will have a copy of Fabozzi’s (one b or two in Fabozzi, I don’t remember) Handbook of Mortgage Backed Securities. It’s the reference, but like any other book in a market that moves this fast, it’s a couple of years out of date by the time the latest edition hits the shelves. But in a country where most college students have a hard time calculating percentages, a book focused on probability and integral calculus will not be a big seller.
