Subprime RMBS: Expected Credit Losses vs Mark to Market Losses
Expected credit losses on AAA tranches: ZERO
Mark to market losses so far on AAA tranches: around $ 175 bn
Source: BofE
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jck [at]
aleablog [dot] com
May 1st, 2008 at 8:07 am
An interesting facet of the mark to market of the AAA tranches is that with house prices falling less people are likely to prepay their mortgage since they are likely to be underwater.
This will extend the duration of the tranche massively, explaining a decent amount of the mark-to-market losses.
thx for a great blog, and srry if this is teaching a grandmother to suck eggs - came as a surprise to me when i heard about it.
May 2nd, 2008 at 6:13 am
Chart A is unintelligible and probably tripe.
Chart B is the market gradualy hoisting in how bad it is going to be.
Bit of a blooper by the BoE. There will be hell to pay.