To Do
Jeffrey
This looks like an interesting bond. Would be spending around $1MM.
$1.5MM of our CIT & 2017 bonds have been called at par. I would like to use some of these proceeds to buy this mortgage bond.
Let me know.
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Apologies in advance for the dissertation below.
BOAMS 07-1 2Al2 is a Prime 6% coupon, senior support backed by prime jumbo 30yr fix mortgages with a weighted average coupon of 6.38%. What does this mean? Essentially, the bonds are backed by one of the most rate sensitive homeowners in the market. 76% of the homeowners have not missed a payment in the past 2 years, have a 749 avg FICO and have some degree of equity in their homes (home price index updated LTV for this subset of borrowers is 94.07%). These are the type of borrowers that are looking to refinance their current mortgages...this is evident in the pool's historical speeds which have prepaid in the mid to high teens.
Base Case Scenario: This bond is a short duration bond paying 8.8% yield with a 2.47 duration. This is assuming 50% higher severities than 6 month averages, over 2.9x higher CDR prints than 6 month averages, and 20% slower speeds than 6 mos averages.
Stress Case Scenario: Assuming home lending tightens, property values decline further and the current homeowners' credit undergoes significant deterioration, then we should expect prepay speeds to slow down and defaults to ramp up. In our stress case scenario, we assume 33% slower speeds vs 6 mos average, 3.1x higher default rates vs 6 mos averages and 50% higher severities vs 6 mos averages for life of the loans. In this scenario, we default and liquidate 19.6% of the remaining pool. Bear in mind there are only 13.93% delinquent loans to date. In this stress, this bond would yield 2.01% with a 2.44 duration.
Recovery Case Scenario: In this scenario, we assume housing recovers (results in lower LTVs) and borrower's experience positive credit migration (i.e. credit scores improves due to continued performance). If this were to transpire, we'd expect prepay speeds to ramp up as more borrower's would qualify to refinance and severities on liquidations to decrease as property values increase. In this scenario, we assume similar prepay speeds to the 6 month average, 2.6x higher default rates vs 6 month averages and 35% higher severities than the 6 month average. To our recovery scenario, this bond is a 16.42% yield at a 2.40 duration.
Please call the desk with all bids/inquiries related to this bond.
Bond Highlights:
- Avg Loan Balance = $558k
- Avg FICO Score = 742
- HPI (Home price index) adjusted LTV = 97%
- 83 months seasoned
- 76% of borrowers have not missed a single payment in the past 2 years
BOAMS 2007-1 2A12 Offered @ 57-00