Another Wave Of Defaults Set To Hit Mortgage Backed Securities

CDO liquidations ABA feb5

The latest issue of Asset Backed Alert says that Moody’s is currently in the process of preparing a report showing that holders of the most senior-securities of defaulted CDOs will get back, on average, 17 to 30 cents to the dollar.

I’ll repeat that. 17 to 30 cents on the dollar for these crappy CDOs in default.

Asset Backed Alert also reports that 2010 could see an uptick in the amount of CDO liquidations. What’s more, defaults aren’t likely to end anytime soon. Rather, they could actually increase this year. This could mean that banks and other financial institutions holding these mortgage related CDOs are in for another round of punishment.

Particularly, this quote is disturbing:

Among the deals tracked by S&P, those that haven’t liquidated have either rearranged payments to accelerate principal installments to senior investors at the expense of junior holders, or done nothing.”

And this one too:

There have been rumours of negative returns on some senior tranches saddled with out-of-the-money interest rate swaps.”

In the meantime, rather than worrying about total economic meltdown, we will simply wait for Moody’s to release their report and will then decide whether to breathe a sigh of relief or move to the North Pole.

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