It’s no secret that bonds backed by HELOCs have been experiencing issues. But, one bond has done particularly poorly - so poorly that 81 of every 100 borrowers are expected to default on their loans. Portfolio.com explains:

“…It’s not uncommon for bonds backed by home-equity lines to have recovery rates of zero when there is a default. But in one case, a bond known as Bear Stearns 2007-01, closed in April 2007, it’s not just the recovery rates which are dreadful, it’s the default rates, too. According to an Ambac presentation (Ambac was an insurer on the bond) losses have already reached 9.9%, which is pretty bad. But just look at projected losses, over the life of the bond: 81.8%! As David Wallis, Ambac’s chief risk officer, explains, this means that 81 of every 100 borrowers in that pool will simply walk away from their loans.”

With situations like this, it’s no wonder that banks are tightening lending standards and cutting lines.

See Also:

Which Lenders are Freezing HELOC Lines?

Tags | Heloc, heloc bonds, heloc freeze, mortgage crisis