Subprime securities – still being downgraded

Lifted from comments by reader Juan comes this article from the Finacial Times:

Subprime securities – still being downgraded

Some two weeks ago Moody’s announced it was downgrading 28 tranches of various bonds (as well as upgrading two tranches, and confirming others) in an action that covered roughly $1.2bn worth of mortgage-backed securities (MBS).

Today’s rating action concludes the review actions announced in March 2013 relating to the existence of errors in the Structured Finance Workstation (SFW) cash flow models used in rating these transactions.

In the impacted deals, all collected principal and interest is commingled into one payment waterfall to pay all promised interest due on bonds first, then to pay scheduled principal from the remaining funds. The cash flow models used in previous rating actions, which mistakenly applied separate interest and principal waterfalls, have been corrected, and today’s rating action reflects the commingled payment waterfall.


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