Global Securitized Products Weekly

ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION™

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Global Securitized Products Weekly Structured Products Strategy

Agency MBS We maintain a short-term neutral/long-term positive view on MBS after closing our long on Thursday following a sharp post-FOMC outperformance.. We project roughly $580B in net MBS demand from the Fed through December 2013. This should translate to $340B in excess net demand over supply. Investors seeking to reallocate out of MBS are challenged by the lack of compelling alternatives. Our analysis suggests that the Fed will continue to allocate roughly 50% of its MBS purchases into FN 30-years. We favor selling the G1/G2 4 swap based on attractive risk/reward.

Non-Agency MBS Gibbs & Bruns sent a Notice of Non-Performance to Wells Fargo and Morgan Stanley, alleging that they failed to fulfill their duties as Servicer or Master Servicer. Of particular importance is that the Notice of Non-Performance is the same tact Gibbs & Bruns took with Bank of America prior to the settlement. With this historical precedent in mind, we believe that yesterday’s notices could be forerunners to a R&W put-back claim. However, we also believe that any settlement will likely take longer and/or the ultimate payout could be lower. We also provide payout estimates under different scenarios in case a settlement is reached.

CMBS The legacy CMBS market appears to be taking a little bit of a breather this week following last week’s strong performance that accelerated after the Fed announced QE3. However, the new issue market continued to tighten despite profit-taking of mezzanine bonds. We view the QE3 program as bullish for spread products in general and specifically for CMBS. We also look at how credit enhancements have changed over time, thus providing a baseline to make a relative comparison across the various CMBS sectors.

Consumer ABS August credit card performance was strong almost across the board in what was a repeat of June performance with the exception of American Express – suggesting continued strength of the underlying sector. Total consumer debt dropped for the first time in 11 months, driven by a drop in revolving credit, while total household debt shrank on the heels of a decline in mortgage debt. Underlying consumer credit fundamentals remain strong.

CDO / CLO Given a significant rally since mid-August, secondary CLO equities of 2006-2007 vintages are trading at a loss-adjusted breakeven yield in the mid-teen percentages, consistent with the typical return target of new-issue CLOs. In this section, we show why CLO equity holders, especially those with equity trading significantly higher than their NAV levels, should sell into the rally and reinvest the proceeds into new-issue CLO equities.

Modeling and Analytics We show how to use Locus calculator dials to model various policy risks: the New FHFA reps and warrant framework, potential HARP expansion, g-fee increase, QE3 MBS basis tightening, the new FHFA streamlined short sale policy, and the potential loosening up lock-in effect.

Research Analysts

GLOBAL HEAD Roger Lehman +1 212 325 2123 [email protected]

AGENCY MBS Mahesh Swaminathan +1 212 325 8789 [email protected]

Qumber Hassan +1 212 538 4988 [email protected]

Vikram Rao +1 212 325 0709 [email protected]

NON-AGENCY MBS/CONSUMER ABS Chandrajit Bhattacharya +1 212 325 1546 [email protected]

Marc Firestein +1 212 325 4379 [email protected]

CMBS Roger Lehman +1 212 325 2123 [email protected]

Sylvain Jousseaume +1 212 325 1356 [email protected]

Serif Ustun, CFA +1 212 538 4582 [email protected]

Tee Chew +1 212 325 8703 [email protected]

CDO/CLO David Yan +1 212 325 5792 [email protected]

EUROPEAN UPDATE Carlos Diaz +44 20 7888 2414 [email protected]

MODELING AND ANALYTICS David Zhang +1 212 325 2783 [email protected]

Table of Contents

Core Views 2

Agency MBS 3

Non-Agency MBS 10

CMBS 22

Consumer ABS 34

CDO / CLO 40

Modeling and Analytics 43

20 September 2012Fixed Income Research

http://www.credit-suisse.com/researchandanalytics

Focus on Locus New policy dials in the MBS Calculator!

www.credit-suisse.com/locus

http://www.credit-suisse.com/locus

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Agency MBS Neutral MBS basis Neutral 15s/30s Long ARMs over 15-yrs

Sell FN 3.5/3 swap Sell DW 3/2.5 swap and buy DW 5/4.5 swap

Housing

Case Shiller HPI numbers came in strongly positive and most indicators point to an increase in non-distressed sales and a continued increase in short sales. Although negative seasonality starting with post-summer selling season has weighed down on the market for the last three years, a significantly lower REO inventory and sales as well as increasing share of short sales all remain very supportive in the near term. However, weakness in the labor market and the possibility of increasing foreclosure starts and liquidations in the medium term can possibly weigh on the markets, potentially contributing to price declines of the order of 3% from here, although this should not have a meaningful impact on mortgage performance and security prices.

Prepayment

Speeds on HARP-eligible cohorts may remain elevated for longer due to the recently announced new reps & warranties framework and operational changes to the program. Capacity constraints limit the risk of a spike in prepay speeds above the current levels. Outlook for higher g-fee should eventually benefit refi sensitive coupons and IO paper.

Non-Agency MBS

Non-Agency prices showed continued stability last week on strong volumes. With the introduction of QE3, we think lower mortgage rates are likely to translate into incrementally faster prepayments, especially on underwater Prime, Alt-A, and some POAs (see report). With the housing market stabilizing, we think these sectors will increasingly outperform. We especially like Alt-As and POAs due to their higher yields. With rates likely to be lower for longer, carry will be increasing important. From this perspective, we see value in higher coupon Prime and Alt-As; we recommend holding on to them or buying with leverage. We turn neutral on Subprime LCFs, as the sector has richened significantly and carry is low. We also think higher credit prime/Alt-A Re-Remic Mezz are best positioned for a recovery trade and remain cheap on a relative basis.

Add with leverage or hold on to high coupon cleaner Prime and Alt- As. We still prefer fixed coupon Prime and Alt-A with slightly higher delinquency but higher optionality.

Continue to remain overweight on Inverse IOs vs. WAC IOs. Overweight Alt-As and POAs due to optionality and incrementally higher carry. Neutral on Subprime LCFs and Penns – sector has richened significantly and low

carry. Underweight (slightly longer duration) front pay subprime with servicing issues. Long Prime and Alt-A Re-Remic Mezz.

Consumer ABS

We remain neutral on 2yr COMNI paper – currently trading at about 25bp. But technicals remain supportive and risk/reward favors holding. We turn neutral on prime auto seniors but remain overweight on subprime autos due to wider spreads. We also like prime subordinates due to strong fundamental performance and fast structural deleveraging. Shorter PSL senior notes provide relative value over most of the consumer ABS universe and most seniors can withstand draconian performance scenarios.

We remain overweight on ABS, based on performance and supply/demand outlook. Neutral on Prime auto seniors. Overweight subprime Autos sector. Value in highly

rated SDART & AMCAR subs, prefer SDART seniors. Also prefer prime auto subs. Overweight longer duration FFELP paper and short duration PSL seniors. Franchise deals have tightened but still have room for further tightening. We turn neutral on 2yr COMNI paper – but risk/reward favors continued holding.

CMBS

The legacy CMBS market appears to be taking a little bit of a breather this week following last week’s strong performance that accelerated after the Fed announced QE3. However, the new issue market continued to tighten despite profit-taking of mezzanine bonds. We view the QE3 program as bullish for spread products in general and specifically for CMBS.

We find relative value in: Wider back-end super seniors and AMs and select, select mid-tier AJs; New issue mezzanine classes; and TRX versus Triple-A off new issue single-borrower deals.

CLO/CDO

Moderate growth and a low rate environment make corporate credit more attractive relative to other risky assets; corporate default rates should stay low – market consensus expects them to be about 2%-3% for 2012. The Fed’s recently announced QE3 and the pledge to keep interest rates low until mid-2015 will likely encourage further yield-chasing; however, we remain concerned about the longer-term picture and near-term macro head winds such as a potential hard-landing in emerging economies and an impending “fiscal cliff’ in the U.S. On the new-issue front, the YTD total tally is almost $29bn, and the pipeline remains strong. New issue AAA spreads grinded in to about 145bps–147bps.

CLOs in general appear cheap to most other securitized products. Within the non-PIK-able space, we recommend overweighting senior AAA tranches. Within the PIK-able space, we now favor the primary equity tranches over the

secondary paper, and also recommend an overweight in the BB tranches as well.

Source: Credit Suisse * Bolded parts are updated for the week

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20 September 2012

Global Securitized Products Weekly 3

Agency MBS Strategy We maintain a short-term neutral/long-term positive view on MBS after closing our

long on Thursday following a sharp post-FOMC outperformance. Valuations look full even based on record tight spreads set during the 2004-06 great vol decline. We look for profit-taking by hedge funds to offer a more attractive entry point.

We project roughly $580B in net MBS demand from the Fed through December 2013. This should translate to $340B in excess net demand over supply. Roughly $200B in eventual sales by money managers should provide an offset. However, this may not occur until investors have clarity on the trajectories of Fed purchases and carry on production coupons.

Investors seeking to reallocate out of MBS are challenged by a lack of compelling alternatives. For example, valuations versus corporates are cheap after adjusting for the current “muddling” economy, in our view. We note that current yield spreads versus corporates are more consistent with the end of QE rather than the start.

Our analysis suggests that the Fed will continue to allocate roughly 50% of its MBS purchases into FN 30-years. Our drilldown into the Fed’s past purchases suggests that settlements should be limited to a 50% to 70% range of cumulative issuance to avoid extreme dollar roll specialness and maintain TBA liquidity.

We favor selling the G1/G2 4 swap based on attractive risk/reward. Technical factors have pushed valuations to rich levels and should reverse in the absence of fundamental support, in our view.

Trade recommendations Hold sell FN 3.5/3 swap (sell $100MM FN 3.5, buy $69MM FN 3) based on our view that

rolls/valuations on FN 3.5s should come under pressure reflecting an outlook for a sharp pick-up in TBA speeds (MBS Trade Note, 9 July 2012). This trade is down 6+ ticks since inception.

Hold sell DW 3/2.5 (sell $100MM DW 3, buy $77MM DW 2.5), buy DW 5/4.5 (buy $100 million DW 5, sell $86 million DW 4.5), based on our expectation of cheapening in the DW 3 roll at the current TBA price (Global Securitized Products Weekly, 2 May 2011). This trade is down 2+ ticks since inception.

Exhibit 1: Current trade recommendations Actual P&L should be slightly lower as this does not reflect bid/offer spread.

Trade Idea Start Date P&L

P&L (ticks)

Sell $100MM FN 3.5, buy $69MM FN 3 9-Jul-12 (195,606) (6.3)Sell $100MM DW 3, Buy $77MM DW 2.5; Buy $100MM DW 5, Sell $86MM DW 4.5

2-May-12 (70,753) (2.3)

Total P&L of open trades (266,359)Total P&L of trades closed YTD 5,789,199

Note: Pricing date: Sep 18, 2012. Source: Credit Suisse (US Mortgage Strategy)

Mahesh Swaminathan +1 212 325 8789

[email protected]

Qumber Hassan +1 212 538 4988

[email protected]

Vikram Rao +1 212 325 0709

[email protected]

20 September 2012


Near-term neutral/long-term positive on MBS basis – Record valuations fully reflect positive technicals We maintain a neutral view on the MBS basis after closing out our long recommendation last Thursday following the FOMC’s QE3 announcement. The nominal basis to 10-year swaps remains in record tight territory despite modest cheapening this week (Exhibit 2). Our MBS market implied QE metric remains around 120%, underscoring the overshoot in MBS performance (Exhibit 3).

We expect profit-taking in the near term, which should offer a more attractive entry point. Hedge funds and investors seeking to realize profits into quarter end are potential sellers. Longer term, spreads should remain structurally tight for an extended period based on net demand far exceeding supply on the heels of QE3 (Exhibit 4).

Exhibit 2: The nominal MBS basis is tighter than levels reached during the great vol decline of 2004-06 FN current coupon yield spread to 10-year swaps

30-Dec-06 31-Dec-07 30-Dec-08 30-Dec-09 30-Dec-10 31-Dec-11

50

75

100

MB

S b

asis

(bp)

The great vol decline(measured Fed,GSEs step back)

QE 1

QE3

Crisiswides

Source: Credit Suisse Locus

Exhibit 3: MBS market implied QE probability points to an overshoot of a record tight “fair value”

01/28/12 02/23/12 03/20/12 04/15/12 05/11/12 06/06/12 07/02/12 07/28/12 08/23/12

25%

50%

75%

100%

125%

MB

S im

plie

d Q

E3

pro

bab

ility

MBS mkt implied QE3 probability 5s10s ($500B) Source: Credit Suisse Lous

20 September 2012


Our base case projection is for $580B of net MBS purchases by the Fed, offset by $200B in money manager sales over the next 15 months. However, these sales may not occur until investors are comfortable with the trajectories of the Fed’s purchases and carry on production coupons. We also note that money managers do not have compelling alternative investments at current valuations. For example, MBS yield spreads to corporates are consistent with levels at the tail end of an MBS QE program rather than at the start of one (Exhibit 5). Furthermore, MBS appear cheap to corporates in a muddling economy environment. We recognize that corporates have room to further tighten versus MBS if markets start pricing in a strong economy scenario.

Exhibit 4: MBS net demand is likely to sharply outstrip supply through December 2013 Balances in $B

Base case Bullish jobs scenario Without QE3

Organic supply 100 Organic supply 120 Organic supply 100GSE 100 GSE 100 GSE 100Net Supply 200 Net Supply 220 Net Supply 200

Fed 580 Fed 400 Fed 30Money managers -200 Money managers -200 Money managers 100Banks 100 Banks 80 Banks 100REITs 90 REITs 110 REITs 100Foreign Investors -30 Foreign Investors -30 Foreign Investors -30Net Demand 540 Net Demand 360 Net Demand 300

Excess Demand 340 Excess Demand 140 Excess Demand 100

Source: Credit Suisse estimates

Exhibit 5: Current MBS/corporate yield spread is consistent with the end of QE rather than the beginning

12/31/99 07/01/02 12/30/04 07/01/07 12/30/09 06/30/12

-300

-200

-100

0

100

200

MB

S/C

orp

yiel

d sp

read

(bp

)

MBS/Corp yield spread MBS/AA Corp yield spread

Credit Suisse Locus

Source: Credit Suisse

20 September 2012


Exhibit 6: MBS is cheap to corporates adjusted for a muddling economy FN current coupon yield spread to 10-year swaps

0 25 50 75 100 125 150 175 200 225 250 275

-50

0

50

100

2s10s swaps curve (bp)

MB

S/C

orp

yiel

d sp

read

(bp)

2003 2004-2007 2010-2011 2012

Super fastrefis

Goldilockseconomy

Muddlingeconomy

MBS cheap tocorporates


Exploring potential QE implementation and liquidity considerations As the Fed embarks on QE3, we expect that it will maintain a disproportionately large bias towards purchases in Fannie 30-year pools, as it has expressed in previous purchase programs. We believe that the Fed would need to aggressively roll its purchases (and not take delivery) to the maximum extent possible, in order to prevent a worsening of roll specialness of production coupons, especially FN 3.5s. A threshold of maintaining cumulative settled purchases between 50% to 70% of cumulative issuance could be sustained, in our view.

The Fed is likely to allocate roughly 50% of purchases to FN 30-years

During QE1, roughly 50% of the Fed’s purchases was in FN 30-years (Exhibit 7). This was disproportionately large compared to the share of FN 30-years in gross issuance (excluding specified pools). This preference for FN 30-years has remained in recent months, as the Fed has reinvested paydowns.

For QE3, we expect the Fed to maintain the 50% allocation to FN 30-years. This would translate to $35B/month going into FN 30s out of a total of $70B/month. This would represent around 115% of gross issuance, based on recent issuance numbers.

However, it is noteworthy that the Fed has changed its asset allocation in other sectors since QE1. For example, as Freddie’s share of aggregate issuance has declined, the Fed has lowered its FH purchases and bought more 15-years and GNs.

Aggressively rolling purchases (delaying settlement) is key to preserving TBA liquidity

During QE1, production coupons began trading special as the Fed began taking delivery of MBS (Exhibit 8). In FN 4s and 4.5s, the Fed’s cumulative settled purchases rapidly grew to represent 75%-85% of cumulative gross issuance during the purchase period (we exclude specified pools from this analysis). This caused those rolls to trade special by 20-25bp.

20 September 2012


In FN 5s, the problem was more aggravated as the Fed’s purchases represented over 100% of gross issuance (excluding specified pools) and the 5 roll traded as special as 92bp when this ratio got to 125%.

These extremely special levels corresponded to eventual fails problems at the end of QE1. This time around, such problems could be exacerbated due to the significantly special starting point for rolls in contrast to relatively fair value at the start of QE1. The presence of fails charges can drive special rolls to gravitate to specialness levels consistent with these charges.

We believe that the Fed could alleviate extreme roll specialness by aggressively rolling purchases instead of taking delivery. Maintaining the ratio of cumulative settled purchases to gross issuance (excluding specified pools) in a 50%-70% range could avoid dramatic roll specialness, in our view.

We believe that, during QE3, FN 2.5 and 3s will be the production coupons as mortgage rates get to 3.25%. It is likely that FN 3.5s will face similar issues during QE3 as FN 5s faced during QE1. The float of FN 5s as of Jan 2009 was $110B (2006-2008 origination excluding CMOs and specified pools), which is comparable to the $136B float of FN 3.5s today (excluding Fed holdings, CMOs and specified pools). However, FN 3.5s are already trading special (currently by around 180bp) prior to the onset of QE3 purchases. We believe it is important that the Fed aggressively roll FN 3.5 purchases such that the ratio of cumulative settled purchases to gross issuance (excluding specified pools) does not exceed 100%.

Exhibit 7: The Fed has historically purchased a larger share of FN 30-yr than implied by issuance share Amounts in $B

Period: QE1, Jan 2009 - Mar 2010

Fed purchases Purchases/Issuance mix diff

(net of sales)

30-yr 15-yr 30-yr 15-yr 30-yr 15-yr 30-yr 15-yr 30-yr 15-yrFN 664 34 FN 53% 3% FN 570 118 FN 35% 7% FN -19% 4%FH 425 8 FH 34% 1% FH 419 64 FH 26% 4% FH -9% 3%GN 114 GN 9% 0% GN 453 14 GN 28% GN 19% 0%

Period: Paydowns reinvestment, Oct 2011 - Aug 2012

Fed purchases Purchases/Issuance mix diff(net of sales)

30-yr 15-yr 30-yr 15-yr 30-yr 15-yr 30-yr 15-yr 30-yr 15-yrFN 164 25 FN 48% 7% FN 316 111 FN 34% 12% FN -14% 5%FH 81 17 FH 24% 5% FH 142 61 FH 15% 7% FH -8% 2%GN 51 2 GN 15% 0% GN 268 19 GN 29% 2% GN 14% 2%

Gross issuance (ex specs) Issuance Product Mix

Gross issuance (ex specs)

Purchases Product Mix

Purchases Product Mix Issuance Product Mix

Source: Credit Suisse, CPR/CDR

20 September 2012


Exhibit 8: Aggressive settlement of purchases drives sharp increases in roll specialness Amounts in $B

Settlement Month

Cumulative Settled

purchases(A)

Cumulative Gross Issuance

(ex specs)(B)

A / B Roll specialness

(%)

Cumulative Settled

purchases(A)


(ex specs)(B)


Cumulative Settled

purchases(A)


(ex specs)(B)


Feb-09 2 14 14% 0.01 1 21 4% 0.26 8 10 76% 0.34Mar-09 15 33 47% -0.04 35 60 58% -0.05 12 19 67% -0.23Apr-09 37 43 86% -0.35 55 82 67% -0.17 22 22 97% -0.07May-09 47 56 84% -0.27 68 113 60% -0.14 42 33 129% -0.19Jun-09 69 79 88% -0.19 119 159 75% -0.18 21 37 56% -0.25Jul-09 90 99 91% -0.19 147 188 78% -0.08 22 42 54% -0.09Aug-09 94 106 89% -0.17 168 212 80% -0.10 37 49 74% -0.31Sep-09 94 110 85% -0.15 176 229 77% -0.12 55 61 90% -0.81Oct-09 94 112 84% -0.17 193 240 80% -0.21 74 68 110% -0.65Nov-09 96 113 85% -0.19 202 254 80% -0.27 88 75 118% -0.82Dec-09 97 117 84% -0.23 210 271 77% -0.26 96 82 117% -0.64Jan-10 100 119 84% -0.21 220 285 77% -0.25 109 88 125% -0.92Feb-10 101 121 83% -0.17 232 300 77% -0.14 112 93 120% -0.78Mar-10 101 122 83% -0.06 244 311 78% -0.03 120 100 121% -0.78

Cumulative Settled purchases = Aggregate Fed settled purchases (net of sales) through the given settlement monthRoll specialness = B/E Financing rate minus 1M Libor

FN 4.0 FN 4.5 FN 5.0

Source: Credit Suisse, CPR/CDR

Sell G1/G2 4 swap We recommend selling the G1/G2 4 swap (sell $100MM of G1/G2 4 swap at 8.75 ticks) following its recent outperformance. This has been driven by the relative specialness of the G1 4 roll, which is trading roughly 3 ticks special compared to the fairly priced G2 4 roll (Exhibit 9). Furthermore, non-rollers should favor G2 4s over G1 4s due to cheaper valuations.

The roll specialness of G1 4s is based on technical reasons which should be resolved soon, in our view. This roll should revert to a flat level as carry is normalized. A lingering roll specialness of G1 4s is a key risk to this trade.

The current deliverable in both G1 and G2 4s is from mid-2011. However, given the relatively small float of G1 4s from 2011 (Exhibit 10), there is some risk that deliverable may shift to Q1:12, which is slower than H2:11 origination due to its lesser seasoning (Exhibit 11). This is more likely to occur if real money investors take delivery of TBA.

The risk of deliverable shifting to Q1:12 is relatively lower for G2 4s due to their large 2011 float.

Exhibit 9: G1/G2 4 swap performance vs. carry

31-Mar-12 30-Apr-12 31-May-12 30-Jun-12 31-Jul-12 30-Aug-12

-5

0

5

-1

0

1

2

Sw

ap P

rice

($)

Car

ry (

ticks

)

G1/G2 4 swap Carry

Credit Suisse Locus


20 September 2012


Exhibit 10: Float in GN 4s by origination year (Excludes Fed holdings, CMOs, and specs; $B)

2010 2011 2012 TotalG1 4s 1.5 7.1 13.4 22.1G2 4s 0.8 18.3 88.8 107.9


Exhibit 11: Voluntary speeds for G1 and G2 4s across different origination periods (Loan balance pools are excluded from G1s)

Aug CRR

3-mth CRR

Aug CRR

3-mth CRR

H1:11 17.1 14.6 15.2 12.6H2:11 20.4 17.3 20.1 16.0Q1:12 14.5 11.8 15.0 11.0

Origination Period

G1 4s G2 4s


20 September 2012


Non-Agency MBS Gibbs & Bruns – new filings directed at Wells, Morgan Stanley… is JPM next? Early Wednesday morning, Gibbs & Bruns released a press statement announcing that their clients sent a Notice of Non-Performance to both Wells Fargo and Morgan Stanley, alleging that both banks, in their roles as Servicer or Master Servicer, failed to fulfill their duties as laid out by the applicable Pooling and Servicing Agreements covering 234 trusts with an outstanding balance of $73B. If these allegations hold, this would trigger Servicing Events of Default in all of these trusts.

While these actions alone would be quite newsworthy, Gibbs & Bruns’ prior actions suggest that this is more likely an opening salvo rather than an end in itself. Of particular importance is the fact that Notice of Non-Performance is the same tact Gibbs & Bruns took with Bank of America prior to their $8.5B reps and warrants settlement.

Looking forward, we believe that a similar series of events could very well unfold with these trusts. On the other hand, it is important for RMBS investors to keep in mind that while there are similarities in the way events are unfolding, there are very important differences between Bank of America and the current parties’ financial positions as well as their eagerness to settle.

One other potential target looms large on the horizon: JP Morgan. Gibbs & Bruns announced investigations into $95B of JP Morgan/Bear Stearns/WaMu RMBS for “ineligible mortgages” in December 2011. While it is possible that similar filings are in the offing, no public notices have yet been filed.

Same old song and dance?

In January of this year, Gibbs & Bruns announced investigations into both Morgan Stanley and Wells Fargo issued RMBS for “ineligible mortgages,” which would constitute a breach of representations and warranties and on Wednesday it followed up with a notice of non-performance as the servicer and master servicer of the relevant trusts.

Exhibit 12: Important milestones in the Countrywide settlement Date Action

17-Jun-10Gibbs & Bruns sent the first letter on behalf of its clients to BNY Mellon. The letter asserted that the securitization trustee was obligated to take action on non-performing Countrywide mortgages

20-Aug-10 Sent 2nd letter to BNY Mellon on behalf of investors

3-Sep-10 Trustee informed Gibbs & Bruns that it did not intend to take any action on the prior letter

18-Oct-10Institutional Holders of Countrywide-Issued RMBS Issue Notice of Non-Performance to Countrywide as master Servicer & BNY as trustee alleging that Countrywide Servicing has failed to perform on 115 deals

20-Oct-10Announces Countrtywide initiative - to compel the repurchase of ineligible mortgages with R&W violations on 225 deals

29-Jun-1122 Institutional Investors in Countrywide-Issued RMBS Announce Global Settlement of Mortgage Repurchase and Servicing Claims for 530 Countrywide-Issued RMBS Trusts

Source: Credit Suisse, Reuters, Gibbs & Bruns

Wednesday’s filings look quite similar to the ones filed against Bank of America in October 2010. In Exhibit 12 we highlight the important milestones that led to the final settlement with Bank of America. Two days after announcing a Notice of Non-Performance on October 18, Gibbs & Bruns launched a “Countrywide RMBS Initiative” to investigate potential reps and warrants breaches. The filings made Wednesday engage the banks in a similar manner as of the October 18, 2010 filing.

Chandrajit Bhattacharya +1 212 325 1546

[email protected]

Marc Firestein +1 212 325 4379

[email protected]

http://www.gibbsbruns.com/institutional-holders-issue-notice-of-non-performance-identifying-09-19-2012/

http://www.gibbsbruns.com/institutional-bondholders-issue-instructions-to-five-trustees-to-open-investigations-of-ineligble-mortgages-in-over-95-billion-of-jpmorgan-issued-rmbs-12-16-2011/

http://www.gibbsbruns.com/institutional-bondholders-issue-instructions-to-three-trustees-to-open-investigations-of-ineligible-mortgages-in-over-25-billion-of-morgan-stanley-issued-rmbs-01-31-2012/

http://www.gibbsbruns.com/institutional-bondholders-issue-instructions-to-two-trustees-to-open-investigations-of-ineligible-mortgages-in-over-19-billion-of-wells-fargo-issued-rmbs-01-05-2012/

http://www.gibbsbruns.com/countrywide-rmbs-initiative-10-20-2010/

20 September 2012


With this historical precedent in mind, we believe that yesterday’s notices could be forerunners to a representations and warranties put-back claim. January’s press releases further validate this view. To assess the likelihood of a settlement payout, we think investors should keep in mind that there are important circumstantial differences between the two cases:

We believe that the banks listed today are much more financially stable than Bank of America was at the time.

Additionally, because of the potentially large size of Bank of America’s put-back liabilities, equity investors were overly concerned about its share price. In this case, for both Wells Fargo and Morgan Stanley, such concerns about put-back risks are simply not there, making the need to settle on such claims less urgent than it was for BofA.

Having said that, we think that if either of the banks views a potential settlement as a bargain, they will likely settle.

In the case of Bank of America, it took about eight months before the settlement was in place and announced publicly. In this case, however, the negotiations could be more protracted and/or the ultimate payout could be lower because of the bank’s willingness to fight such claims.

Additionally, we note that the Bank of America deal expanded as time passed. The October 18 notice covered 115 deals, the October 20 initiative covered 225, and the final deal covers 530 trusts. Based on such precedence and as more investors join in, the current list of deals can also potentially expand.

Potential claim payouts

At the end of this document, we have attached the list of deals mentioned in this filing. Using the same framework as the Bank of America settlement, we also provide our estimates for settlement amounts for each deal if both parties reach similar agreements; this is based on historical and projected losses. Furthermore, we also believe that these banks’ propensity to fight these claims could lead to a lower payout rate than the Bank of America settlement, which we estimate to be about 9.2% of total projected losses. For reference, we also provide estimates for payout rates of 5% and 2% of total projected losses. Based on our estimates, if there were a settlement, it could potentially range from roughly $800MM to $4B on all the 234 trusts.

Is JP Morgan next?

As noted earlier, Gibbs & Bruns announced an investigation into many of the trusts mentioned today back in January for reps and warrants breaches. Just prior to that, they also announced a similar inquiry into JP Morgan trusts, which include Bear Stearns and WaMu shelves as well. However, there has not yet been any indication of a pending Notice of Non-Performance or any other action taken against JP Morgan.

It is possible that Gibbs & Bruns will continue to pursue JP Morgan for potential put-back claims, particularly the deals they listed in their December 2011 press release. At the end of this document, we provide a similar analysis for the listed JP Morgan deals as we did for the Morgan Stanley/Wells Fargo trusts. We also believe that any potential payout for JP Morgan would have a longer timeline or a lower payout amount than the Bank of America settlement for the same reasons listed above.

20 September 2012


Exhibit 13: Wells Fargo deals listed in filings and potential settlement allocations

Deal NameCurrent

Balance ($MM)9.2% (CW

Payout Rate)5% Payout

Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

WFALT 2005-1 69.4 1.0 0.6 0.2 1.5% 0.8% 0.3%

WFALT 2005-2 48.0 4.3 2.3 0.9 9.0% 4.9% 2.0%

WFALT 2007-PA1 354.7 18.7 10.2 4.1 5.3% 2.9% 1.1%

WFALT 2007-PA2 514.0 47.5 25.8 10.3 9.3% 5.0% 2.0%

WFALT 2007-PA3 716.4 37.3 20.3 8.1 5.2% 2.8% 1.1%

WFALT 2007-PA4 248.5 16.7 9.1 3.6 6.7% 3.6% 1.5%

WFALT 2007-PA5 386.9 15.8 8.6 3.4 4.1% 2.2% 0.9%

WFALT 2007-PA6 284.7 17.8 9.7 3.9 6.3% 3.4% 1.4%

WFHET 2004-1 124.1 5.8 3.1 1.3 4.7% 2.5% 1.0%

WFHET 2004-2 840.9 20.7 11.2 4.5 2.5% 1.3% 0.5%

WFHET 2005-2 163.6 11.3 6.1 2.5 6.9% 3.8% 1.5%

WFHET 2005-3 335.6 26.7 14.5 5.8 8.0% 4.3% 1.7%

WFHET 2005-4 173.8 15.4 8.4 3.3 8.9% 4.8% 1.9%

WFHET 2006-1 255.2 23.4 12.7 5.1 9.2% 5.0% 2.0%

WFHET 2006-3 306.7 37.2 20.2 8.1 12.1% 6.6% 2.6%

WFHET 2007-1 215.2 23.6 12.9 5.1 11.0% 6.0% 2.4%

WFHET 2007-2 192.6 21.5 11.7 4.7 11.2% 6.1% 2.4%

WFMBS 2004-1 147.4 0.3 0.2 0.1 0.2% 0.1% 0.0%

WFMBS 2004-2 39.6 0.0 0.0 0.0 0.1% 0.0% 0.0%

WFMBS 2004-3 25.1 0.0 0.0 0.0 0.0% 0.0% 0.0%

WFMBS 2004-4 64.7 0.2 0.1 0.1 0.4% 0.2% 0.1%

WFMBS 2004-5 41.9 0.0 0.0 0.0 0.0% 0.0% 0.0%

WFMBS 2004-6 147.0 0.4 0.2 0.1 0.3% 0.2% 0.1%

WFMBS 2004-7 44.3 0.0 0.0 0.0 0.1% 0.0% 0.0%

WFMBS 2004-A 68.0 0.1 0.1 0.0 0.2% 0.1% 0.0%

WFMBS 2004-AA 91.1 0.6 0.3 0.1 0.7% 0.4% 0.2%

WFMBS 2004-B 21.6 0.0 0.0 0.0 0.2% 0.1% 0.0%

WFMBS 2004-BB 265.4 3.4 1.8 0.7 1.3% 0.7% 0.3%

WFMBS 2004-C 35.4 0.2 0.1 0.0 0.4% 0.2% 0.1%

WFMBS 2004-CC 68.8 0.7 0.4 0.1 1.0% 0.5% 0.2%

WFMBS 2004-DD 174.7 2.0 1.1 0.4 1.2% 0.6% 0.3%

WFMBS 2004-E 42.1 0.1 0.1 0.0 0.3% 0.2% 0.1%

WFMBS 2004-EE 315.5 1.1 0.6 0.2 0.3% 0.2% 0.1%

WFMBS 2004-F 50.3 0.1 0.1 0.0 0.2% 0.1% 0.0%

WFMBS 2004-G 50.6 0.2 0.1 0.0 0.3% 0.2% 0.1%

WFMBS 2004-H 91.0 0.4 0.2 0.1 0.5% 0.3% 0.1%

WFMBS 2004-I 66.9 0.2 0.1 0.0 0.3% 0.2% 0.1%

WFMBS 2004-J 85.3 0.3 0.2 0.1 0.3% 0.2% 0.1%

WFMBS 2004-K 191.1 0.5 0.3 0.1 0.3% 0.1% 0.1%

WFMBS 2004-L 67.2 0.2 0.1 0.0 0.2% 0.1% 0.1%

WFMBS 2004-M 156.2 0.6 0.3 0.1 0.4% 0.2% 0.1%

WFMBS 2004-N 262.1 2.0 1.1 0.4 0.8% 0.4% 0.2%

WFMBS 2004-O 112.8 0.3 0.1 0.1 0.2% 0.1% 0.1%

WFMBS 2004-P 366.1 2.8 1.5 0.6 0.8% 0.4% 0.2%

WFMBS 2004-Q 125.6 0.7 0.4 0.1 0.5% 0.3% 0.1%

WFMBS 2004-R 145.0 1.0 0.5 0.2 0.7% 0.4% 0.1%

WFMBS 2004-S 508.6 1.0 0.6 0.2 0.2% 0.1% 0.0%

WFMBS 2004-T 14.7 0.0 0.0 0.0 0.2% 0.1% 0.0%

WFMBS 2004-U 31.4 0.2 0.1 0.0 0.6% 0.3% 0.1%

WFMBS 2004-V 106.5 0.4 0.2 0.1 0.4% 0.2% 0.1%

Settlement allocations ($MM) Under Different Payout Rates (% of losses)

Settlement allocation (% of curr Bal) Under Different Payout Rates (% of losses)

Source: Credit Suisse, LoanPerformance, Gibbs & Bruns

20 September 2012


Exhibit 14: Wells Fargo deals listed in filings and potential settlement allocations (continued)

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

WFMBS 2004-W 194.7 1.6 0.9 0.3 0.8% 0.4% 0.2%

WFMBS 2004-X 100.0 0.8 0.5 0.2 0.8% 0.5% 0.2%

WFMBS 2004-Y 182.7 1.4 0.8 0.3 0.8% 0.4% 0.2%

WFMBS 2004-Z 350.9 3.5 1.9 0.8 1.0% 0.5% 0.2%

WFMBS 2005-1 61.7 0.0 0.0 0.0 0.0% 0.0% 0.0%

WFMBS 2005-10 70.6 0.4 0.2 0.1 0.6% 0.3% 0.1%

WFMBS 2005-11 238.5 4.4 2.4 1.0 1.8% 1.0% 0.4%

WFMBS 2005-12 259.9 3.5 1.9 0.8 1.4% 0.7% 0.3%

WFMBS 2005-13 57.3 0.1 0.1 0.0 0.2% 0.1% 0.0%

WFMBS 2005-14 527.1 5.7 3.1 1.2 1.1% 0.6% 0.2%

WFMBS 2005-15 30.2 0.0 0.0 0.0 0.2% 0.1% 0.0%

WFMBS 2005-16 283.3 3.1 1.7 0.7 1.1% 0.6% 0.2%

WFMBS 2005-17 312.7 5.3 2.9 1.2 1.7% 0.9% 0.4%

WFMBS 2005-18 234.1 3.0 1.6 0.7 1.3% 0.7% 0.3%

WFMBS 2005-2 206.8 1.1 0.6 0.2 0.5% 0.3% 0.1%

WFMBS 2005-3 148.7 1.1 0.6 0.2 0.7% 0.4% 0.2%

WFMBS 2005-4 86.4 0.7 0.4 0.1 0.8% 0.4% 0.2%

WFMBS 2005-5 58.3 0.3 0.1 0.1 0.4% 0.2% 0.1%

WFMBS 2005-6 162.0 1.1 0.6 0.2 0.7% 0.4% 0.1%

WFMBS 2005-7 128.1 1.3 0.7 0.3 1.1% 0.6% 0.2%

WFMBS 2005-8 223.5 3.0 1.6 0.6 1.3% 0.7% 0.3%

WFMBS 2005-9 299.0 2.8 1.5 0.6 0.9% 0.5% 0.2%

WFMBS 2005-AR1 299.5 3.7 2.0 0.8 1.2% 0.7% 0.3%

WFMBS 2005-AR10 1,013.0 5.0 2.7 1.1 0.5% 0.3% 0.1%

WFMBS 2005-AR11 106.6 0.3 0.1 0.1 0.2% 0.1% 0.1%

WFMBS 2005-AR12 554.0 3.8 2.1 0.8 0.7% 0.4% 0.1%

WFMBS 2005-AR13 480.0 5.5 3.0 1.2 1.1% 0.6% 0.2%

WFMBS 2005-AR14 306.3 3.9 2.1 0.9 1.3% 0.7% 0.3%

WFMBS 2005-AR15 239.9 4.0 2.2 0.9 1.7% 0.9% 0.4%

WFMBS 2005-AR16 1,136.4 13.4 7.3 2.9 1.2% 0.6% 0.3%

WFMBS 2005-AR2 531.0 6.6 3.6 1.4 1.2% 0.7% 0.3%

WFMBS 2005-AR3 320.8 1.8 1.0 0.4 0.6% 0.3% 0.1%

WFMBS 2005-AR4 341.4 3.9 2.1 0.8 1.1% 0.6% 0.2%

WFMBS 2005-AR5 136.6 1.4 0.8 0.3 1.0% 0.5% 0.2%

WFMBS 2005-AR6 180.9 1.0 0.5 0.2 0.5% 0.3% 0.1%

WFMBS 2005-AR7 275.3 2.4 1.3 0.5 0.9% 0.5% 0.2%

WFMBS 2005-AR8 305.7 1.9 1.0 0.4 0.6% 0.3% 0.1%

WFMBS 2005-AR9 376.3 1.9 1.0 0.4 0.5% 0.3% 0.1%

WFMBS 2006-1 66.2 0.4 0.2 0.1 0.6% 0.3% 0.1%

WFMBS 2006-10 221.7 4.1 2.2 0.9 1.8% 1.0% 0.4%

WFMBS 2006-11 264.1 6.0 3.2 1.3 2.3% 1.2% 0.5%

WFMBS 2006-12 262.6 6.1 3.3 1.3 2.3% 1.3% 0.5%

WFMBS 2006-13 246.2 5.2 2.8 1.1 2.1% 1.1% 0.5%

WFMBS 2006-14 162.7 3.5 1.9 0.8 2.2% 1.2% 0.5%

WFMBS 2006-15 872.6 18.0 9.8 3.9 2.1% 1.1% 0.4%

WFMBS 2006-16 317.9 2.1 1.1 0.4 0.6% 0.4% 0.1%

WFMBS 2006-17 35.8 0.4 0.2 0.1 1.0% 0.6% 0.2%

WFMBS 2006-19 67.9 0.6 0.3 0.1 0.9% 0.5% 0.2%

WFMBS 2006-2 577.6 10.0 5.4 2.2 1.7% 0.9% 0.4%

WFMBS 2006-20 28.4 0.2 0.1 0.0 0.7% 0.4% 0.2%




20 September 2012


Exhibit 15: Wells Fargo deals listed in filings and potential settlement allocations (continued)

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

WFMBS 2006-3 281.1 3.6 1.9 0.8 1.3% 0.7% 0.3%

WFMBS 2006-4 329.5 6.1 3.3 1.3 1.8% 1.0% 0.4%

WFMBS 2006-5 56.6 0.4 0.2 0.1 0.6% 0.4% 0.1%

WFMBS 2006-6 358.4 6.2 3.4 1.3 1.7% 0.9% 0.4%

WFMBS 2006-7 115.8 2.4 1.3 0.5 2.1% 1.1% 0.4%

WFMBS 2006-8 413.0 7.6 4.1 1.6 1.8% 1.0% 0.4%

WFMBS 2006-9 394.4 8.0 4.3 1.7 2.0% 1.1% 0.4%

WFMBS 2006-AR1 301.2 5.7 3.1 1.2 1.9% 1.0% 0.4%

WFMBS 2006-AR10 1,091.0 39.8 21.6 8.7 3.6% 2.0% 0.8%

WFMBS 2006-AR11 245.7 7.1 3.9 1.5 2.9% 1.6% 0.6%

WFMBS 2006-AR12 415.1 12.8 7.0 2.8 3.1% 1.7% 0.7%

WFMBS 2006-AR13 241.9 7.4 4.0 1.6 3.0% 1.7% 0.7%

WFMBS 2006-AR14 615.5 17.0 9.3 3.7 2.8% 1.5% 0.6%

WFMBS 2006-AR16 140.4 4.8 2.6 1.0 3.4% 1.9% 0.7%

WFMBS 2006-AR17 168.2 6.6 3.6 1.4 3.9% 2.1% 0.9%

WFMBS 2006-AR18 347.0 8.3 4.5 1.8 2.4% 1.3% 0.5%

WFMBS 2006-AR19 266.2 6.0 3.3 1.3 2.3% 1.2% 0.5%

WFMBS 2006-AR2 1,629.7 40.1 21.8 8.7 2.5% 1.3% 0.5%

WFMBS 2006-AR3 205.0 5.1 2.8 1.1 2.5% 1.3% 0.5%

WFMBS 2006-AR4 467.7 9.8 5.3 2.1 2.1% 1.1% 0.5%

WFMBS 2006-AR5 421.6 17.3 9.4 3.8 4.1% 2.2% 0.9%

WFMBS 2006-AR6 618.7 8.5 4.6 1.8 1.4% 0.7% 0.3%

WFMBS 2006-AR7 356.6 18.0 9.8 3.9 5.1% 2.7% 1.1%

WFMBS 2006-AR8 546.7 10.4 5.6 2.3 1.9% 1.0% 0.4%

WFMBS 2007-1 239.1 5.6 3.0 1.2 2.3% 1.3% 0.5%

WFMBS 2007-10 709.5 15.7 8.5 3.4 2.2% 1.2% 0.5%

WFMBS 2007-11 1,586.1 31.9 17.4 6.9 2.0% 1.1% 0.4%

WFMBS 2007-12 130.2 1.2 0.7 0.3 1.0% 0.5% 0.2%

WFMBS 2007-13 179.8 3.9 2.1 0.8 2.2% 1.2% 0.5%

WFMBS 2007-14 1,853.4 30.1 16.4 6.6 1.6% 0.9% 0.4%

WFMBS 2007-15 504.3 9.9 5.4 2.2 2.0% 1.1% 0.4%

WFMBS 2007-2 542.7 13.2 7.2 2.9 2.4% 1.3% 0.5%

WFMBS 2007-3 453.4 10.1 5.5 2.2 2.2% 1.2% 0.5%

WFMBS 2007-4 697.4 17.2 9.4 3.7 2.5% 1.3% 0.5%

WFMBS 2007-5 113.6 1.3 0.7 0.3 1.1% 0.6% 0.2%

WFMBS 2007-6 284.6 6.6 3.6 1.4 2.3% 1.3% 0.5%

WFMBS 2007-7 2,157.4 45.4 24.7 9.9 2.1% 1.1% 0.5%

WFMBS 2007-8 1,122.5 24.6 13.4 5.4 2.2% 1.2% 0.5%

WFMBS 2007-9 179.7 1.7 0.9 0.4 1.0% 0.5% 0.2%

WFMBS 2007-AR3 198.3 6.1 3.3 1.3 3.1% 1.7% 0.7%

WFMBS 2007-AR4 172.8 6.6 3.6 1.4 3.8% 2.1% 0.8%

WFMBS 2007-AR8 184.4 6.6 3.6 1.4 3.6% 2.0% 0.8%

WMLT 2005-A 124.6 2.8 1.5 0.6 2.2% 1.2% 0.5%

WMLT 2005-B 167.0 2.9 1.6 0.6 1.8% 1.0% 0.4%

WMLT 2005-WMC1 83.6 15.5 8.4 3.4 18.5% 10.0% 4.0%

WMLT 2006-A 124.8 2.5 1.4 0.5 2.0% 1.1% 0.4%

WMLT 2006-ALT1 180.7 13.3 7.2 2.9 7.4% 4.0% 1.6%

WMLT 2006-AMN1 270.4 22.9 12.5 5.0 8.5% 4.6% 1.8%

WMLT 2007-A 92.2 3.5 1.9 0.8 3.8% 2.1% 0.8%




20 September 2012


Exhibit 16: Morgan Stanley deals listed in filings and potential settlement allocations

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

IXIS 2005-HE3 70.1 13.4 7.3 2.9 19.2% 10.4% 4.2%

IXIS 2005-HE4 109.4 20.7 11.2 4.5 18.9% 10.3% 4.1%

IXIS 2006-HE1 146.0 28.5 15.5 6.2 19.5% 10.6% 4.2%

IXIS 2006-HE2 243.1 40.4 21.9 8.8 16.6% 9.0% 3.6%

IXIS 2006-HE3 318.0 48.3 26.3 10.5 15.2% 8.3% 3.3%

IXIS 2007-HE1 350.1 49.1 26.7 10.7 14.0% 7.6% 3.0%

MSAC 2006-HE2 443.3 79.2 43.0 17.2 17.9% 9.7% 3.9%

MSAC 2006-HE3 452.0 75.1 40.8 16.3 16.6% 9.0% 3.6%

MSAC 2006-HE4 488.7 84.3 45.8 18.3 17.3% 9.4% 3.8%

MSAC 2006-HE5 476.3 70.4 38.3 15.3 14.8% 8.0% 3.2%

MSAC 2006-HE6 521.3 73.0 39.7 15.9 14.0% 7.6% 3.0%

MSAC 2006-HE8 527.4 70.6 38.4 15.4 13.4% 7.3% 2.9%

MSAC 2006-NC2 296.4 43.8 23.8 9.5 14.8% 8.0% 3.2%

MSAC 2006-NC3 302.1 42.3 23.0 9.2 14.0% 7.6% 3.0%

MSAC 2006-NC4 518.2 83.7 45.5 18.2 16.2% 8.8% 3.5%

MSAC 2006-WMC2 724.2 126.7 68.8 27.5 17.5% 9.5% 3.8%

MSAC 2007-HE1 473.2 60.6 32.9 13.2 12.8% 7.0% 2.8%

MSAC 2007-HE2 464.1 62.2 33.8 13.5 13.4% 7.3% 2.9%

MSAC 2007-HE3 353.1 43.7 23.8 9.5 12.4% 6.7% 2.7%

MSAC 2007-HE4 288.7 39.5 21.5 8.6 13.7% 7.4% 3.0%

MSAC 2007-HE5 502.1 64.6 35.1 14.0 12.9% 7.0% 2.8%

MSAC 2007-HE6 538.4 64.2 34.9 14.0 11.9% 6.5% 2.6%

MSAC 2007-HE7 710.6 83.7 45.5 18.2 11.8% 6.4% 2.6%

MSAC 2007-NC1 434.3 57.9 31.5 12.6 13.3% 7.2% 2.9%

MSAC 2007-NC2 419.2 57.2 31.1 12.4 13.6% 7.4% 3.0%

MSAC 2007-NC3 541.3 65.6 35.7 14.3 12.1% 6.6% 2.6%

MSAC 2007-NC4 533.2 67.1 36.5 14.6 12.6% 6.8% 2.7%

MSAC 2007-SEA1 229.5 30.0 16.3 6.5 13.1% 7.1% 2.8%

MSHEL 2006-3 228.9 40.8 22.2 8.9 17.8% 9.7% 3.9%

MSHEL 2007-1 267.2 34.1 18.6 7.4 12.8% 6.9% 2.8%

MSHEL 2007-2 420.9 46.6 25.4 10.1 11.1% 6.0% 2.4%

MSIX 2006-1 287.3 55.2 30.0 12.0 19.2% 10.4% 4.2%

MSIX 2006-2 492.4 71.3 38.7 15.5 14.5% 7.9% 3.1%

MSM 2004-1 30.2 0.1 0.0 0.0 0.2% 0.1% 0.0%

MSM 2004-10AR 88.7 1.5 0.8 0.3 1.7% 0.9% 0.4%

MSM 2004-11AR 190.8 6.5 3.6 1.4 3.4% 1.9% 0.7%

MSM 2004-2AR 64.7 0.2 0.1 0.0 0.3% 0.2% 0.1%

MSM 2004-3 207.0 1.5 0.8 0.3 0.7% 0.4% 0.2%

MSM 2004-4 123.1 1.6 0.9 0.3 1.3% 0.7% 0.3%

MSM 2004-5AR 171.1 1.8 1.0 0.4 1.1% 0.6% 0.2%

MSM 2004-6AR 218.0 3.5 1.9 0.8 1.6% 0.9% 0.3%

MSM 2004-7AR 122.4 2.9 1.6 0.6 2.3% 1.3% 0.5%

MSM 2004-8AR 85.6 1.9 1.0 0.4 2.2% 1.2% 0.5%

MSM 2004-9 84.3 1.2 0.7 0.3 1.5% 0.8% 0.3%

MSM 2005-1 129.2 1.5 0.8 0.3 1.2% 0.7% 0.3%

MSM 2005-10 187.5 5.1 2.8 1.1 2.7% 1.5% 0.6%

MSM 2005-11AR 159.9 10.6 5.7 2.3 6.6% 3.6% 1.4%

MSM 2005-2AR 140.5 4.1 2.2 0.9 2.9% 1.6% 0.6%

MSM 2005-3AR 233.5 10.0 5.5 2.2 4.3% 2.3% 0.9%

MSM 2005-4 276.2 4.8 2.6 1.0 1.7% 0.9% 0.4%




20 September 2012


Exhibit 17: Morgan Stanley deals listed in filings and potential settlement allocations (continued)

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

MSM 2005-5AR 377.7 18.2 9.9 4.0 4.8% 2.6% 1.0%

MSM 2005-6AR 376.1 19.3 10.5 4.2 5.1% 2.8% 1.1%

MSM 2005-7 401.0 8.0 4.3 1.7 2.0% 1.1% 0.4%

MSM 2005-9AR 187.3 8.7 4.7 1.9 4.6% 2.5% 1.0%

MSM 2006-11 293.9 17.2 9.4 3.7 5.9% 3.2% 1.3%

MSM 2006-12XS 242.9 19.2 10.4 4.2 7.9% 4.3% 1.7%

MSM 2006-13AX 232.4 26.2 14.2 5.7 11.3% 6.1% 2.4%

MSM 2006-15XS 319.1 20.7 11.2 4.5 6.5% 3.5% 1.4%

MSM 2006-16AX 459.0 40.6 22.1 8.8 8.9% 4.8% 1.9%

MSM 2006-17XS 257.0 18.2 9.9 4.0 7.1% 3.9% 1.5%

MSM 2006-1AR 190.4 11.0 6.0 2.4 5.8% 3.1% 1.3%

MSM 2006-2 267.8 7.4 4.0 1.6 2.8% 1.5% 0.6%

MSM 2006-3AR 257.6 14.5 7.9 3.2 5.6% 3.1% 1.2%

MSM 2006-5AR 177.7 10.6 5.8 2.3 6.0% 3.2% 1.3%

MSM 2006-6AR 340.9 28.9 15.7 6.3 8.5% 4.6% 1.8%

MSM 2006-7 246.5 12.6 6.8 2.7 5.1% 2.8% 1.1%

MSM 2006-8AR 299.1 15.0 8.1 3.3 5.0% 2.7% 1.1%

MSM 2006-9AR 251.4 25.6 13.9 5.6 10.2% 5.5% 2.2%

MSM 2007-10XS 307.8 17.0 9.2 3.7 5.5% 3.0% 1.2%

MSM 2007-11AR 170.9 17.0 9.3 3.7 10.0% 5.4% 2.2%

MSM 2007-12 243.1 6.4 3.5 1.4 2.6% 1.4% 0.6%

MSM 2007-13 310.5 14.5 7.9 3.2 4.7% 2.5% 1.0%

MSM 2007-14AR 408.4 21.8 11.8 4.7 5.3% 2.9% 1.2%

MSM 2007-15AR 362.8 26.1 14.2 5.7 7.2% 3.9% 1.6%

MSM 2007-1XS 264.7 19.0 10.3 4.1 7.2% 3.9% 1.6%

MSM 2007-2AX 319.3 28.8 15.6 6.3 9.0% 4.9% 2.0%

MSM 2007-3XS 273.8 18.6 10.1 4.0 6.8% 3.7% 1.5%

MSM 2007-5AX 278.6 25.9 14.1 5.6 9.3% 5.1% 2.0%

MSM 2007-6XS 294.5 17.1 9.3 3.7 5.8% 3.2% 1.3%

MSM 2007-7AX 549.8 51.6 28.0 11.2 9.4% 5.1% 2.0%

MSM 2007-8XS 326.6 21.0 11.4 4.6 6.4% 3.5% 1.4%

SAST 2004-1 87.3 5.5 3.0 1.2 6.3% 3.4% 1.4%

SAST 2004-2 158.1 6.1 3.3 1.3 3.9% 2.1% 0.8%

SAST 2004-3 90.1 6.7 3.6 1.5 7.4% 4.0% 1.6%

SAST 2005-1 108.5 8.6 4.7 1.9 7.9% 4.3% 1.7%

SAST 2005-2 136.7 11.3 6.1 2.4 8.2% 4.5% 1.8%

SAST 2005-3 199.7 17.0 9.3 3.7 8.5% 4.6% 1.9%

SAST 2005-4 149.1 14.7 8.0 3.2 9.8% 5.4% 2.1%

SAST 2006-1 145.0 12.8 6.9 2.8 8.8% 4.8% 1.9%

SAST 2006-2 303.3 29.0 15.8 6.3 9.6% 5.2% 2.1%

SAST 2006-3 510.8 50.6 27.5 11.0 9.9% 5.4% 2.2%

SAST 2007-1 257.6 26.5 14.4 5.8 10.3% 5.6% 2.2%

SAST 2007-2 387.8 37.3 20.3 8.1 9.6% 5.2% 2.1%

SAST 2007-3 746.5 62.3 33.9 13.5 8.3% 4.5% 1.8%

SAST 2007-4 250.9 19.8 10.7 4.3 7.9% 4.3% 1.7%




20 September 2012


Exhibit 18: JP Morgan deals listed in filings and potential settlement allocations

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

BALTA 2005-4 533.5 21.4 11.6 4.6 4.0% 2.2% 0.9%

BALTA 2005-7 1,117.0 60.3 32.8 13.1 5.4% 2.9% 1.2%

BALTA 2006-1 449.9 39.8 21.6 8.7 8.9% 4.8% 1.9%

BALTA 2006-5 363.3 43.6 23.7 9.5 12.0% 6.5% 2.6%

BALTA 2006-6 593.1 57.9 31.5 12.6 9.8% 5.3% 2.1%

BALTA 2006-8 445.0 44.2 24.0 9.6 9.9% 5.4% 2.2%

BALTA 2007-1 343.3 29.2 15.9 6.3 8.5% 4.6% 1.8%

BALTA 2007-2 287.9 29.7 16.1 6.5 10.3% 5.6% 2.2%

BALTA 2007-3 330.9 38.5 20.9 8.4 11.6% 6.3% 2.5%

BSAAT 2007-1 797.4 58.0 31.5 12.6 7.3% 4.0% 1.6%

BSABS 2005-3 63.0 6.1 3.3 1.3 9.7% 5.3% 2.1%

BSABS 2005-AC1 50.0 2.3 1.2 0.5 4.6% 2.5% 1.0%

BSABS 2005-AC2 163.3 6.3 3.4 1.4 3.9% 2.1% 0.8%

BSABS 2005-AC5 170.7 8.2 4.4 1.8 4.8% 2.6% 1.0%

BSABS 2005-AC7 131.2 5.4 2.9 1.2 4.1% 2.2% 0.9%

BSABS 2005-AC8 137.4 9.0 4.9 1.9 6.5% 3.5% 1.4%

BSABS 2005-AC9 148.6 9.3 5.1 2.0 6.3% 3.4% 1.4%

BSABS 2005-AQ2 110.6 21.4 11.6 4.7 19.3% 10.5% 4.2%

BSABS 2005-CL1 86.0 3.3 1.8 0.7 3.8% 2.1% 0.8%

BSABS 2005-FR1 148.6 18.5 10.0 4.0 12.4% 6.8% 2.7%

BSABS 2005-HE11 131.2 17.8 9.7 3.9 13.6% 7.4% 3.0%

BSABS 2005-SD1 70.1 2.4 1.3 0.5 3.5% 1.9% 0.8%

BSABS 2005-SD2 97.9 4.3 2.3 0.9 4.3% 2.4% 0.9%

BSABS 2005-SD3 112.1 4.7 2.6 1.0 4.2% 2.3% 0.9%

BSABS 2005-SD4 126.4 4.9 2.7 1.1 3.9% 2.1% 0.8%

BSABS 2005-TC2 105.5 5.9 3.2 1.3 5.6% 3.0% 1.2%

BSABS 2006-1 62.7 7.2 3.9 1.6 11.5% 6.2% 2.5%

BSABS 2006-2 61.3 5.0 2.7 1.1 8.1% 4.4% 1.8%

BSABS 2006-AC1 286.3 19.0 10.3 4.1 6.6% 3.6% 1.4%

BSABS 2006-AC2 187.1 13.7 7.4 3.0 7.3% 4.0% 1.6%

BSABS 2006-AC3 201.4 16.8 9.1 3.6 8.3% 4.5% 1.8%

BSABS 2006-AQ1 215.6 30.3 16.5 6.6 14.1% 7.6% 3.1%

BSABS 2006-HE3 162.2 25.8 14.0 5.6 15.9% 8.6% 3.5%

BSABS 2006-HE6 165.7 23.2 12.6 5.0 14.0% 7.6% 3.0%

BSABS 2006-HE7 201.0 29.2 15.9 6.4 14.5% 7.9% 3.2%

BSABS 2006-IM1 213.6 32.7 17.8 7.1 15.3% 8.3% 3.3%

BSABS 2006-SD1 132.3 6.9 3.7 1.5 5.2% 2.8% 1.1%

BSABS 2006-SD2 115.2 6.1 3.3 1.3 5.3% 2.9% 1.1%

BSABS 2006-SD3 136.3 7.7 4.2 1.7 5.6% 3.1% 1.2%

BSABS 2006-SD4 104.5 5.9 3.2 1.3 5.6% 3.1% 1.2%

BSABS 2006-ST1 53.1 8.3 4.5 1.8 15.6% 8.5% 3.4%

BSABS 2007-1 55.6 6.7 3.6 1.4 12.0% 6.5% 2.6%

BSABS 2007-AC3 177.3 13.7 7.5 3.0 7.7% 4.2% 1.7%

BSABS 2007-AC4 205.0 14.6 7.9 3.2 7.1% 3.9% 1.6%

BSABS 2007-AC5 268.7 15.5 8.4 3.4 5.8% 3.1% 1.3%

BSABS 2007-AC6 151.1 8.7 4.7 1.9 5.7% 3.1% 1.2%

BSABS 2007-AQ2 84.3 12.6 6.9 2.7 15.0% 8.1% 3.3%

BSABS 2007-FS1 162.1 19.4 10.5 4.2 11.9% 6.5% 2.6%

BSABS 2007-HE4 372.2 37.1 20.2 8.1 10.0% 5.4% 2.2%

BSABS 2007-HE6 416.6 37.3 20.3 8.1 8.9% 4.9% 1.9%




20 September 2012


Exhibit 19: JP Morgan deals listed in filings and potential settlement allocations (continued)

Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

BSABS 2007-HE7 377.5 26.0 14.1 5.6 6.9% 3.7% 1.5%

BSABS 2007-SD1 123.6 5.8 3.1 1.3 4.7% 2.5% 1.0%

BSABS 2007-SD2 144.7 10.6 5.8 2.3 7.3% 4.0% 1.6%

BSARM 2005-1 169.3 4.4 2.4 0.9 2.6% 1.4% 0.6%

BSARM 2005-10 849.0 12.3 6.7 2.7 1.4% 0.8% 0.3%

BSARM 2005-12 345.1 14.1 7.7 3.1 4.1% 2.2% 0.9%

BSARM 2005-2 499.0 1.3 0.7 0.3 0.3% 0.1% 0.1%

BSARM 2005-5 341.1 2.1 1.1 0.4 0.6% 0.3% 0.1%

BSARM 2005-6 235.9 7.7 4.2 1.7 3.3% 1.8% 0.7%

BSARM 2005-7 212.6 4.7 2.5 1.0 2.2% 1.2% 0.5%

BSARM 2005-9 445.1 7.7 4.2 1.7 1.7% 0.9% 0.4%

BSARM 2007-4 556.8 21.6 11.8 4.7 3.9% 2.1% 0.8%

BSARM 2007-5 181.9 7.0 3.8 1.5 3.8% 2.1% 0.8%

BSMF 2006-AC1 93.4 7.7 4.2 1.7 8.3% 4.5% 1.8%

BSMF 2006-AR1 386.5 47.4 25.8 10.3 12.3% 6.7% 2.7%

BSMF 2006-AR2 461.4 54.0 29.3 11.7 11.7% 6.4% 2.5%

BSMF 2006-AR3 342.0 40.4 21.9 8.8 11.8% 6.4% 2.6%

BSMF 2006-AR5 861.8 94.7 51.4 20.6 11.0% 6.0% 2.4%

BSMF 2006-SL2 25.2 21.5 11.7 4.7 85.5% 46.5% 18.6%

BSMF 2006-SL3 22.6 20.5 11.2 4.5 90.8% 49.3% 19.7%

BSMF 2006-SL4 23.9 21.7 11.8 4.7 91.1% 49.5% 19.8%

BSMF 2006-SL6 31.6 27.6 15.0 6.0 87.4% 47.5% 19.0%

BSMF 2007-AR1 510.9 56.4 30.7 12.3 11.0% 6.0% 2.4%

BSMF 2007-AR3 624.3 70.2 38.1 15.3 11.2% 6.1% 2.4%

BSMF 2007-AR4 655.1 61.5 33.4 13.4 9.4% 5.1% 2.0%

BSMF 2007-AR5 586.5 45.3 24.6 9.8 7.7% 4.2% 1.7%

BSMF 2007-SL2 28.6 23.2 12.6 5.0 80.8% 43.9% 17.6%

CFLX 2005-1 163.3 3.9 2.1 0.9 2.4% 1.3% 0.5%

CFLX 2005-2 212.6 5.1 2.8 1.1 2.4% 1.3% 0.5%

CFLX 2006-1 183.2 7.0 3.8 1.5 3.8% 2.1% 0.8%

CFLX 2006-2 157.5 8.7 4.7 1.9 5.5% 3.0% 1.2%

CFLX 2007-1 206.9 10.3 5.6 2.2 5.0% 2.7% 1.1%

CFLX 2007-2 299.7 14.5 7.9 3.2 4.9% 2.6% 1.1%

CFLX 2007-3 377.9 22.9 12.5 5.0 6.1% 3.3% 1.3%

CFLX 2007-M1 412.8 32.9 17.9 7.1 8.0% 4.3% 1.7%

CHASE 2005-A1 643.5 11.7 6.4 2.6 1.8% 1.0% 0.4%

CHASE 2005-A2 373.8 9.6 5.2 2.1 2.6% 1.4% 0.6%

CHASE 2005-S1 153.3 1.0 0.6 0.2 0.7% 0.4% 0.1%

CHASE 2005-S2 242.4 2.3 1.2 0.5 0.9% 0.5% 0.2%

CHASE 2005-S3 269.9 2.7 1.5 0.6 1.0% 0.5% 0.2%

CHASE 2006-A1 311.8 8.6 4.7 1.9 2.8% 1.5% 0.6%

CHASE 2006-S1 184.2 2.9 1.6 0.6 1.6% 0.9% 0.3%

CHASE 2006-S2 315.8 7.3 4.0 1.6 2.3% 1.3% 0.5%

CHASE 2006-S3 248.7 8.8 4.8 1.9 3.5% 1.9% 0.8%

CHASE 2006-S4 202.7 5.5 3.0 1.2 2.7% 1.5% 0.6%

CHASE 2007-A1 1,081.2 12.7 6.9 2.8 1.2% 0.6% 0.3%

CHASE 2007-A2 566.2 3.1 1.7 0.7 0.5% 0.3% 0.1%

CHASE 2007-S1 176.2 4.8 2.6 1.0 2.7% 1.5% 0.6%

CHASE 2007-S2 225.0 5.4 2.9 1.2 2.4% 1.3% 0.5%

CHASE 2007-S3 442.5 11.3 6.1 2.5 2.6% 1.4% 0.6%




20 September 2012



Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

CHASE 2007-S5 271.1 6.7 3.6 1.4 2.5% 1.3% 0.5%

CHASE 2007-S6 506.8 11.5 6.2 2.5 2.3% 1.2% 0.5%

EMCM 2006-A 44.9 4.5 2.4 1.0 10.0% 5.4% 2.2%

JPALT 2005-A2 204.5 8.4 4.5 1.8 4.1% 2.2% 0.9%

JPALT 2005-S1 478.3 17.5 9.5 3.8 3.7% 2.0% 0.8%

JPALT 2006-A1 291.6 16.0 8.7 3.5 5.5% 3.0% 1.2%

JPALT 2006-A2 389.6 27.4 14.9 6.0 7.0% 3.8% 1.5%

JPALT 2006-A4 356.0 23.7 12.9 5.2 6.7% 3.6% 1.5%

JPALT 2006-A5 306.4 21.8 11.8 4.7 7.1% 3.9% 1.5%

JPALT 2006-A6 298.7 19.9 10.8 4.3 6.7% 3.6% 1.5%

JPALT 2006-A7 374.2 28.4 15.4 6.2 7.6% 4.1% 1.7%

JPALT 2006-S1 369.0 17.0 9.3 3.7 4.6% 2.5% 1.0%

JPALT 2006-S2 165.7 12.3 6.7 2.7 7.5% 4.1% 1.6%

JPALT 2006-S3 458.0 30.2 16.4 6.6 6.6% 3.6% 1.4%

JPALT 2006-S4 383.7 18.9 10.3 4.1 4.9% 2.7% 1.1%

JPALT 2007-A1 354.6 32.6 17.7 7.1 9.2% 5.0% 2.0%

JPALT 2007-A2 618.0 55.7 30.3 12.1 9.0% 4.9% 2.0%

JPALT 2007-S1 303.1 18.7 10.2 4.1 6.2% 3.4% 1.3%

JPMAC 2006-CH1 251.3 19.1 10.4 4.1 7.6% 4.1% 1.6%

JPMAC 2006-FRE2 201.8 29.8 16.2 6.5 14.8% 8.0% 3.2%

JPMAC 2006-HE2 164.7 20.6 11.2 4.5 12.5% 6.8% 2.7%

JPMAC 2006-NC2 282.3 35.7 19.4 7.8 12.6% 6.9% 2.7%

JPMAC 2006-WF1 278.4 25.0 13.6 5.4 9.0% 4.9% 2.0%

JPMAC 2006-WMC1 248.0 41.1 22.4 8.9 16.6% 9.0% 3.6%

JPMMT 2005-A1 308.2 0.5 0.3 0.1 0.1% 0.1% 0.0%

JPMMT 2005-A2 243.0 2.2 1.2 0.5 0.9% 0.5% 0.2%

JPMMT 2005-A3 495.6 6.4 3.5 1.4 1.3% 0.7% 0.3%

JPMMT 2005-A4 251.2 2.2 1.2 0.5 0.9% 0.5% 0.2%

JPMMT 2005-A5 281.7 2.8 1.5 0.6 1.0% 0.5% 0.2%

JPMMT 2005-A6 473.0 6.5 3.6 1.4 1.4% 0.8% 0.3%

JPMMT 2005-A7 361.6 5.0 2.7 1.1 1.4% 0.8% 0.3%

JPMMT 2005-A8 700.4 12.5 6.8 2.7 1.8% 1.0% 0.4%

JPMMT 2005-ALT1 223.5 9.2 5.0 2.0 4.1% 2.2% 0.9%

JPMMT 2005-S2 384.5 3.7 2.0 0.8 1.0% 0.5% 0.2%

JPMMT 2005-S3 397.7 6.3 3.4 1.4 1.6% 0.9% 0.3%

JPMMT 2006-A1 306.1 7.6 4.1 1.6 2.5% 1.3% 0.5%

JPMMT 2006-A2 783.3 12.4 6.8 2.7 1.6% 0.9% 0.3%

JPMMT 2006-A3 533.4 14.3 7.7 3.1 2.7% 1.5% 0.6%

JPMMT 2006-A4 457.2 10.8 5.9 2.4 2.4% 1.3% 0.5%

JPMMT 2006-A5 444.7 14.0 7.6 3.1 3.2% 1.7% 0.7%

JPMMT 2006-A6 301.8 7.3 3.9 1.6 2.4% 1.3% 0.5%

JPMMT 2006-A7 281.6 10.4 5.7 2.3 3.7% 2.0% 0.8%

JPMMT 2006-S1 326.5 5.2 2.8 1.1 1.6% 0.9% 0.3%

JPMMT 2006-S2 467.1 9.5 5.2 2.1 2.0% 1.1% 0.4%

JPMMT 2006-S3 334.7 6.7 3.6 1.5 2.0% 1.1% 0.4%

JPMMT 2006-S4 314.3 11.3 6.2 2.5 3.6% 2.0% 0.8%

JPMMT 2007-A1 1,284.7 7.8 4.3 1.7 0.6% 0.3% 0.1%

JPMMT 2007-A2 360.2 9.7 5.3 2.1 2.7% 1.5% 0.6%

JPMMT 2007-A3 289.2 8.8 4.8 1.9 3.1% 1.7% 0.7%

JPMMT 2007-A4 299.4 8.4 4.6 1.8 2.8% 1.5% 0.6%




20 September 2012



Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

JPMMT 2007-A5 404.4 12.2 6.6 2.7 3.0% 1.6% 0.7%

JPMMT 2007-A6 271.9 6.2 3.4 1.4 2.3% 1.2% 0.5%

JPMMT 2007-S1 326.5 7.4 4.0 1.6 2.3% 1.2% 0.5%

JPMMT 2007-S2 549.8 17.9 9.7 3.9 3.2% 1.8% 0.7%

JPMMT 2007-S3 847.8 30.2 16.4 6.6 3.6% 1.9% 0.8%

PRIME 2005-1 29.3 0.1 0.1 0.0 0.5% 0.2% 0.1%

PRIME 2005-2 43.8 0.4 0.2 0.1 0.9% 0.5% 0.2%

PRIME 2005-5 53.8 0.9 0.5 0.2 1.6% 0.9% 0.3%

PRIME 2006-DR1 306.7 4.1 2.2 0.9 1.3% 0.7% 0.3%

PRIME 2007-1 287.6 7.9 4.3 1.7 2.7% 1.5% 0.6%

PRIME 2007-2 149.8 6.2 3.4 1.4 4.2% 2.3% 0.9%

PRIME 2007-3 131.4 4.8 2.6 1.0 3.6% 2.0% 0.8%

SACO 2005-3 18.5 6.4 3.5 1.4 34.7% 18.9% 7.6%

SACO 2005-WM3 31.0 22.0 11.9 4.8 70.9% 38.6% 15.4%

SACO 2006-10 33.5 20.4 11.1 4.4 60.8% 33.1% 13.2%

SACO 2006-6 57.7 33.9 18.4 7.4 58.8% 32.0% 12.8%

SACO 2006-7 38.6 27.9 15.2 6.1 72.2% 39.2% 15.7%

SACO 2006-9 72.4 25.0 13.6 5.4 34.5% 18.8% 7.5%

SACO 2007-1 37.9 18.4 10.0 4.0 48.5% 26.4% 10.6%

SACO 2007-VA1 8.1 0.1 0.0 0.0 1.0% 0.5% 0.2%

SAMI 2005-AR1 84.3 3.2 1.7 0.7 3.8% 2.1% 0.8%

SAMI 2005-AR2 162.6 9.4 5.1 2.0 5.8% 3.1% 1.3%

SAMI 2005-AR3 99.8 7.0 3.8 1.5 7.0% 3.8% 1.5%

SAMI 2005-AR4 143.8 12.1 6.6 2.6 8.4% 4.6% 1.8%

SAMI 2005-AR5 233.6 2.1 1.1 0.5 0.9% 0.5% 0.2%

SAMI 2005-AR7 200.7 16.8 9.1 3.7 8.4% 4.6% 1.8%

SAMI 2006-AR1 418.7 40.3 21.9 8.8 9.6% 5.2% 2.1%

SAMI 2006-AR2 243.7 25.5 13.9 5.5 10.5% 5.7% 2.3%

SAMI 2006-AR3 749.1 74.9 40.7 16.3 10.0% 5.4% 2.2%

SAMI 2006-AR4 543.1 52.1 28.3 11.3 9.6% 5.2% 2.1%

SAMI 2006-AR5 291.9 25.0 13.6 5.4 8.6% 4.7% 1.9%

SAMI 2006-AR6 628.0 58.7 31.9 12.8 9.3% 5.1% 2.0%

SAMI 2006-AR7 1,225.0 119.4 64.9 26.0 9.7% 5.3% 2.1%

SAMI 2006-AR8 752.9 74.1 40.3 16.1 9.8% 5.4% 2.1%

SAMI 2007-AR1 333.8 34.1 18.5 7.4 10.2% 5.5% 2.2%

SAMI 2007-AR2 182.4 17.8 9.7 3.9 9.7% 5.3% 2.1%

SAMI 2007-AR3 854.3 81.5 44.3 17.7 9.5% 5.2% 2.1%

SAMI 2007-AR4 709.6 55.2 30.0 12.0 7.8% 4.2% 1.7%

SAMI 2007-AR5 382.4 25.1 13.6 5.5 6.6% 3.6% 1.4%

SAMI 2007-AR6 728.7 59.3 32.2 12.9 8.1% 4.4% 1.8%

SAMI 2007-AR7 512.8 41.5 22.5 9.0 8.1% 4.4% 1.8%

WAMMS 2005-RA1 36.4 0.3 0.2 0.1 0.8% 0.4% 0.2%

WAMU 2005-AR12 435.0 5.8 3.1 1.3 1.3% 0.7% 0.3%

WAMU 2005-AR15 747.8 34.2 18.6 7.4 4.6% 2.5% 1.0%

WAMU 2005-AR17 420.7 19.5 10.6 4.2 4.6% 2.5% 1.0%

WAMU 2005-AR19 573.3 20.1 10.9 4.4 3.5% 1.9% 0.8%

WAMU 2005-AR5 178.0 1.8 1.0 0.4 1.0% 0.5% 0.2%

WAMU 2005-AR7 283.4 3.5 1.9 0.8 1.3% 0.7% 0.3%

WAMU 2006-AR10 506.3 12.9 7.0 2.8 2.6% 1.4% 0.6%

WAMU 2006-AR11 677.6 38.8 21.1 8.4 5.7% 3.1% 1.2%




20 September 2012



Deal NameCurrent



Rate2% Payout

Rate9.2% (CW


Rate 2% Payout Rate

WAMU 2006-AR13 595.1 33.9 18.4 7.4 5.7% 3.1% 1.2%

WAMU 2006-AR14 659.2 18.5 10.1 4.0 2.8% 1.5% 0.6%

WAMU 2006-AR15 381.6 19.5 10.6 4.2 5.1% 2.8% 1.1%

WAMU 2006-AR17 489.6 26.8 14.6 5.8 5.5% 3.0% 1.2%

WAMU 2006-AR19 520.1 29.2 15.9 6.4 5.6% 3.1% 1.2%

WAMU 2006-AR2 132.9 2.5 1.4 0.5 1.9% 1.0% 0.4%

WAMU 2006-AR6 171.3 3.8 2.1 0.8 2.2% 1.2% 0.5%

WAMU 2006-AR7 442.4 24.9 13.6 5.4 5.6% 3.1% 1.2%

WAMU 2006-AR8 455.2 11.7 6.4 2.5 2.6% 1.4% 0.6%

WAMU 2006-AR9 560.4 27.1 14.7 5.9 4.8% 2.6% 1.1%

WAMU 2007-HY1 1,438.0 44.2 24.0 9.6 3.1% 1.7% 0.7%

WAMU 2007-HY2 752.9 25.9 14.1 5.6 3.4% 1.9% 0.7%

WAMU 2007-HY3 1,330.3 36.5 19.8 7.9 2.7% 1.5% 0.6%

WAMU 2007-HY4 773.2 23.3 12.7 5.1 3.0% 1.6% 0.7%

WAMU 2007-HY5 724.5 24.9 13.5 5.4 3.4% 1.9% 0.7%

WAMU 2007-OA1 488.4 28.3 15.4 6.1 5.8% 3.1% 1.3%

WAMU 2007-OA2 448.1 27.9 15.2 6.1 6.2% 3.4% 1.4%

WAMU 2007-OA3 506.0 29.2 15.8 6.3 5.8% 3.1% 1.3%

WAMU 2007-OA5 763.8 54.3 29.5 11.8 7.1% 3.9% 1.5%

WAMU 2007-OA6 785.9 54.6 29.6 11.9 6.9% 3.8% 1.5%

WMALT 2005-10 287.3 11.6 6.3 2.5 4.0% 2.2% 0.9%

WMALT 2005-11 167.3 6.2 3.4 1.4 3.7% 2.0% 0.8%

WMALT 2005-7 209.8 6.2 3.4 1.4 3.0% 1.6% 0.6%

WMALT 2005-8 323.0 8.9 4.8 1.9 2.8% 1.5% 0.6%

WMALT 2005-9 232.5 7.6 4.1 1.6 3.3% 1.8% 0.7%

WMALT 2005-AR1 124.2 11.9 6.5 2.6 9.6% 5.2% 2.1%

WMALT 2006-1 315.6 15.6 8.5 3.4 4.9% 2.7% 1.1%

WMALT 2006-AR1 177.7 19.5 10.6 4.2 10.9% 5.9% 2.4%

WMALT 2006-AR10 234.9 14.8 8.0 3.2 6.3% 3.4% 1.4%

WMALT 2006-AR3 239.6 25.9 14.1 5.6 10.8% 5.9% 2.3%

WMALT 2006-AR5 362.1 42.4 23.0 9.2 11.7% 6.4% 2.5%

WMALT 2006-AR6 275.1 29.6 16.1 6.4 10.8% 5.9% 2.3%

WMALT 2006-AR7 302.3 33.9 18.4 7.4 11.2% 6.1% 2.4%

WMALT 2006-AR8 379.7 43.7 23.7 9.5 11.5% 6.3% 2.5%

WMALT 2006-AR9 433.3 49.0 26.6 10.6 11.3% 6.1% 2.5%

WMALT 2007-2 509.2 24.1 13.1 5.2 4.7% 2.6% 1.0%

WMALT 2007-3 221.3 11.9 6.4 2.6 5.4% 2.9% 1.2%

WMALT 2007-4 196.0 7.4 4.0 1.6 3.8% 2.1% 0.8%

WMALT 2007-OA1 360.6 40.2 21.9 8.7 11.2% 6.1% 2.4%

WMALT 2007-OA2 338.0 35.7 19.4 7.8 10.6% 5.7% 2.3%

WMALT 2007-OA3 1,115.1 97.8 53.2 21.3 8.8% 4.8% 1.9%

WMALT 2007-OA4 212.1 22.3 12.1 4.8 10.5% 5.7% 2.3%

WMALT 2007-OA5 283.1 25.0 13.6 5.4 8.8% 4.8% 1.9%




20 September 2012


CMBS Market activity and relative value The legacy CMBS market appears to be taking a little bit of a breather this week following last week’s strong performance. The new issue market, however, continued to tighten despite profit-taking of mezzanine bonds.

This follows on the heels of the strong rally across the sector a week ago that accelerated after the Fed made its announcement that it was introducing its third quantitative easing program, QE3.

We view the QE3 program as bullish for spread products generally and specifically for CMBS. While the market was expecting some form of policy accommodation, that resulted in spread tightening during the first two weeks of September, the announcement was considered reasonably aggressive relative to expectations.

The program involves purchasing $40 billion a month of MBS while the Fed also continues with its “Operation Twist.” Furthermore, the Fed left the timeframe for these purchases open-ended, noting it will continue this until the labor market outlook improves “substantially.” The Fed also noted that “other policy tools” may be employed. Additionally, it extended its forward interest rate guidance from late 2014 to at least mid-20151.

We believe there are both fundamental and technical aspects that will result from QE3 that are positive for CMBS. In addition, the policy announcement provided a major boost to investor sentiment.

While the purchase program targets Agency MBS, we believe that other securitized products with higher yields, such as CMBS, will also benefit. We have long argued that higher yielding assets, that are considered reasonably well protected from losses, will continue to perform well from a total rate of return vantage point. We believe QE3 will only increase the demand for these types of instruments in an environment where new supply is relatively light and net supply is negative.

Along the same lines, we also believe that the extended low-rate language from the Fed helps bolster the demand for such credit assets with wider spreads.

While these are technically based reasons for CMBS to continue to perform well, we believe that the additional policy moves, and the commitment to improving the labor market, will potentially help CMBS from a fundamental perspective as well.

It has long been our view that commercial real estate performance is closely tied, albeit on a lagged basis, to the overall economic environment. Of all the economic indicators we follow, employment is likely the most important. In Exhibit 23, we show the strong and ongoing relationship between the labor market and commercial real estate vacancy rates.

1 For more details on the policy announcement, see our US Economics Digest dated September 13, 2012, by Neal Soss and Dana

Saporta.

Roger Lehman +1 212 325 2123

[email protected]

Serif Ustun, CFA +1 212 538 4582

[email protected]

Sylvain Jousseaume +1 212 325 1356

[email protected]

Tee Chew +1 212 325 8703

[email protected]

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20 September 2012


Exhibit 23: Vacancy rates by property type versus unemployment rate

2%

4%

6%

8%

10%

12%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Q2

12

Q2

11

Q2

10

Q2

09

Q2

08

Q2

07

Q2

06

Q2

05

Q2

04

Q2

03

Q2

02

Q2

01

Q2

00

Office Retail Multifamily Unemployment (RHS)

Source: Credit Suisse, REIS, Bureau of Labor Statistics

We believe the Fed’s commitment to improving the labor market increases the probability that commercial real estate will continue to improve and bolsters the magnitude of any such recovery.

In addition, we would expect the latest QE announcement to raise inflation expectations over the near term, which we also view as a positive for commercial real estate prices and loan performance.

The prior two quantitative easing programs proved generally constructive for CMBS performance but affected different parts of the capital stack to varying degrees. We show the history of super-senior and AJ markets, for both cash (on a spread basis) and synthetics (on a price basis) in Exhibits 24 to 27. In each chart, we have highlighted, in gray, the periods of quantitative easing as well as delineated keep policy dates. For QE2, we have started at the August 2010 Jackson Hole meeting where the Fed Chairman strongly hinted at a second round of QE even though the official announcement did not begin until later that year.

Exhibit 24: CMBS AAA spread and quantitative easing

0

200

400

600

800

1,000

1,200

1,400

1,600

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-

10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep

-12

Nov 2008QE1 announced

Mar 2009QE1 expanded

Mar 2010QE1 ended

Aug 2010Jackson Hole Meeting QE2 remark

Nov 2010QE2 announced Jun 2011

QE2 ended

Aug 31, 2012Jackson Hole QE3 remark

Sep 13, 2012QE3 announced


20 September 2012


Exhibit 25: CMBS AJ spread and quantitative easing

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500S

ep-0

8

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-

10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep

-12



Mar 2010QE1 ended



Jun 2011QE2 ended




Exhibit 26: CMBX.3 AAA price and quantitative easing

5055

6065

7075

8085

9095

100

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-

10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep

-12



Mar 2010QE1 ended


Nov 2010QE2 announced Jun 2011

QE2 ended



Source: Credit Suisse, Markit

Exhibit 27: CMBX.3 AJ price and quantitative easing

010

2030

405060

7080

90100

Sep

-08

Nov

-08

Jan

-09

Ma

r-09

Ma

y-09

Jul-

09

Sep

-09

Nov

-09

Jan

-10

Ma

r-10

Ma

y-10

Jul-

10

Sep

-10

Nov

-10

Jan

-11

Ma

r-11

Ma

y-11

Jul-

11

Sep

-11

Nov

-11

Jan

-12

Ma

r-12

Ma

y-12

Jul-

12

Sep

-12



Mar 2010QE1 ended



Jun 2011QE2 ended




20 September 2012


The impact of the first round was quickly felt on the super-senior bonds and spreads tightened dramatically in the first few months after the announcement, from historically wide levels (~S+1,400 bp). The impact on the lower-rated, lower-priced bonds was initially less dramatic. In fact AJs, on a cash and synthetic basis, initially traded off. It was not until after the Fed expanded the program, in March of 2009, that the AJ market started to recover.

By contrast, the second round, QE2, had a much less salutary effect on super-seniors but a greater impact on AJs. At the time of Fed Chairman Bernanke’s Jackson Hole speech in August 2010, super-seniors were trading around S+330 bp while AJ spreads were closer to S+1,500 bp (around the super-senior levels when the original program was announced).

Three months later, soon after the program was formally announced, super-seniors had tightened to S+290 bp and AJ spreads were in approximately 400 bp. CMBX.3/4 AJs were up 14 to 15 points. The market continued to rally over the next three months, driving cash spreads to S+170 bp and S+475 bp for super-seniors and AJs, respectively. CMBX.3 AJs rose to $87.7 (compared to around $68.6).

The market peaked toward the end of the first quarter of 2011 and sold off as it approached, then passed, the end of the second program.

It appears that the first two rounds of QE have had the most healing impact on securities that the market is trading with the greatest credit convexity. We believe that this is likely to occur again during the coming QE3 program.

As a result, we look for the credit quality curve to continue to flatten and the higher beta securities to perform well. While we could see some narrowing in the tightest trading names, we believe there is limited upside to these securities.

Therefore, we continue to recommend the wider trading super-seniors and AMs in the legacy sector and believe that these will continue to compress toward the tighter names. At the same time, we see limited upside, on the tightest names. Some of the 2005 last cash flow super-seniors are in the S+40 bp area and trading at very high premiums, making them sensitive to prepays and liquidations.

We also believe that the mid-priced AJs have further upside. We have long suggested care within the AJ sector and still believe caution and selectivity are still required. That said, despite the recent rally, we believe that many of these mid-priced AJs still have relatively high loss-adjusted yields.

Further down the credit spectrum, we believe that the introduction of the latest policy program could also provide a boost to some legacy mezzanine bonds especially on more seasoned vintages and cleaner deals. We noted last month that we saw pockets of value in mezzanine bonds but a blanket recommendation was not warranted. The reach for yield and the potential boost to the economy should provide these bonds with some support.

Using the CMBX market as a proxy, we have seen CMBX.3 and 4 double-A and single-A tranches up 1 to 3 points since the start of the month versus 4 to 7 points on AJs.

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20 September 2012


Exhibit 28: Changes since the beginning of the month

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

AA

A.1

AM

.1A

J.1

AA

.1A

.1B

BB

.1B

BB

-.1

AA

A.2

AM

.2A

J.2

AA

.2A

.2B

BB

.2B

BB

-.2

BB

.2A

AA

.3A

M.3

AJ.

3A

A.3

A.3

BB

B.3

BB

B-.

3B

B.3

AA

A.4

AM

.4A

J.4

AA

.4A

.4B

BB

.4B

BB

-.4

BB

.4A

AA

.5A

M.5

AJ.

5A

A.5

A.5

BB

B.5

BB

B-.

5B

B.5

$


We also believe, for all the above reasons, that the Fed’s policy will further bolster the mezzanine new issue market, which we continue to recommend. Last week, we pointed to the tightening in new issues as a clear indicator that demand for CMBS remained strong. Spreads, across the new issue capital stack, tightened even as the market is facing the biggest three-month issuance total since 2007.

New issue spreads, in both the primary and secondary market, continued to tighten over the past few days as well. For example, the $1 billion UBSBB 2012-C3 deal priced on Friday with the last cash flow super-seniors coming at S+95 bp and the A/A- bond at S+300 bp.

The next deal on the docket, WFCM 2012-LC5 totaling $1.3 billion, priced even tighter at S+85 bp on the super-seniors and S+260 bp on the A- bond. The BBB/BBB- bonds are being launched at S+500 bp, likely much tighter than last week’s deal.

By comparison, super-senior spreads on new issues came at S+160 bp in June and single-A-minus bonds on one deal were at S+470 bp (and may have priced wider on others) while BBB- bonds were pricing in the S+775 bp area.

Given the move over the past three months, it is no surprise that there has been profit-taking on recently issued mezzanine paper over the first few days of this week.

Over the longer term, we expect further spread compression and credit curve flattening in the new issue sector. However, given the amount of bonds that have been put out for the bid, we may see this sector take a breather from the current rally.

CMBS loans in the news MPG’s 500 Orange Tower foreclosed GSMS 2007-GG10

MPG Office Trust announced that a trustee sale of 500 Orange Tower was held earlier in the month and, as a result, the company was relieved of its debt obligation. The trust was the winner of the foreclosure sale and the property is now listed as REO.

We have been following the CMBS-related assets of MPG (formerly known as Maguire) for some time. At the end of July, we discussed an announcement that tax protections on certain properties in the company’s portfolio would expire earlier than expected, at the end of June 2013.

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20 September 2012


MPG has already disposed of or transferred a number of assets to the special servicer (see our May 3, 2012 CMBS Market Watch Weekly for a more detailed discussion). The company had listed six assets that it labeled as “non-core” back in August 2009, including 500 Orange Tower.

In March, MPG announced that 500 Orange Tower and Stadium Towers were being marketed for sale on behalf of CWCapital. If CWCapital did not sell Stadium Towers (JPMCC 2007-LD11) by June 2012 and 500 Orange Towers by September 2012, the special servicer was required to acquire the properties by foreclosures or deeds in lieu of foreclosure. The September foreclosure completed this obligation.

500 Orange Tower is part of the Maguire Anaheim Portfolio loan and is a 278K square foot office building located in Orange, California. The loan is also backed by an adjacent 24-Hour Fitness facility (that has a lease through 2017). The A-note totals $103.5 million and is securitized in GSMS 2007-GG10 (representing 1.5% of the deal). In addition, there is a $6.5 million B-note. The loan has also accumulated $3.3 million in servicing advances and $4.2 million in cumulative ASERs.

There are no updated financials but the property was appraised at $54.2 million as of May, up very slightly over the past year and higher than the September 2009 appraisal of $43.8 million. The August servicing notes indicate the property’s occupancy is at 60.5%.

Wheelock buys 15 hotels in two transactions Various – see Exhibit 29

Wheelock Street Capital announced that it acquired 15 hotels in two separate and unrelated transactions. Several of these properties have exposure to CMBS.

In one transaction, it acquired 12 properties from an affiliate of Inland American Real Estate Trust. The total purchase price was $116 million, although there was no breakout of the individual property prices. The press release noted that some of the financing was provided by assuming existing CMBS loans and the rest by a newly originated senior financing agreement.

The company stated that five of the 12 Inland purchases have exposure in CMBS. We show this in the top half of Exhibit 29. The individual loans tend to be relatively small but are concentrated across two transactions. Two of these five are on the servicer’s watchlist for having DSCRs below 1.0x.

Exhibit 29: Wheelock’s hotel purchases with CMBS exposure

Deal Loan name Cur bal ($mn) % of Deal Maturity MR DSCR MR Occ Financials

as of Status

Purchased from Inland

BACM 2006-4 WXH - Hilton Alpharetta 10.2 0.46 6/1/2016 1.22 61% Mar-12 Current

BACM 2006-4 WXH - Homewood Suites Raleigh 12.5 0.56 6/1/2016 1.85 81% Mar-12 Current

COMM 2006-C7 WXH - Hampton Inn 8.2 0.39 6/1/2016 0.96 62% Feb-12 Watchlist

COMM 2006-C7 WXH - Homewood Suites Houston 7.0 0.33 6/1/2016 1.65 74% Apr-12 Current

COMM 2006-C7 WXH - Homewood Suites Phoenix 6.2 0.29 6/1/2016 0.77 63% Jun-12 Watchlist

Purchased from Sunstone

MSC 2005-T19 Hilton Del Mar 24.4 2.54% 5/1/2015 0.92 67% Jun-12 Watchlist

MSC 2005-T19 Doubletree Minneapolis 16.8 1.75% 5/1/2015 1.84 71% Jun-12 Current

BSCMS 2005-PWR8 Marriott Troy 34.3 2.37% 5/1/2015 0.63 68% Mar-12 Watchlist Source: Credit Suisse, Trepp

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20 September 2012


The purchase from Sunstone includes three hotels, all with larger balances and bigger deal exposures. Two of these are also on the servicer’s watchlist for low DSCRs. The combined purchase price for these three properties was $105 million, according to Wheelock’s press release. This compares to a total outstanding balance of $75.6 million. On average, that implies a current LTV of 72% (although no allocation to the individual properties was provided).

Sunstone had announced in June it was looking to sell four properties. In addition to the three it is selling to Wheelock, it was also, at the time, looking to sell its Marriott Park City property in Utah (which backs a $14.6 million loan in BSCMS 2005-PWR5).

HSN Cornerstone sells for nearly $50 million WFRBS 2012-C7

SK Realty Management has purchased the property that serves as Cornerstone Brands’ corporate headquarters, according to several media reports including one on REBusiness Online. Inland American Realty was the seller.

The 970K square foot property, located in West Chester, OH, backs a $30.5 million loan securitized in WFRBS 2012-C7 (2.8% of the deal). The reported purchase price implies a current LTV ratio of 61.5%. The purchase price was slightly lower than the reported appraisal of $52 million (dated March 2012) when the loan was securitized.

The property is entirely leased, through April 2020, to Cornerstone and has been its headquarters since it was completed in 1999.

The Dream Hotel to liquidate CSMC 2006-C4

The $97.7 million Dream Hotel loan in CSMC 2006-C4 (2.6% of the deal) may be close to liquidation according to freshly released remittance reports. The September servicer comments indicate that the borrower and the lender have agreed on a forbearance and a sale of the note to a third party. The sale appears to have higher certainty of closing since the lender is currently holding a $2.5 million deposit. The transaction is anticipated to close sometime in November.

The Dream Hotel loan, which is backed by a 220 room full service hotel located in mid-town Manhattan, was transferred to special servicing back in April 2009. Mission Capital was hired in March to help with the disposition and put the loan out for competitive bid. The proposed final bid date was scheduled for May but apparently the loan did not sell.

As of September, the loan has accumulated $19.7 million in servicer advances and $5.8 million in ASERs.

A baseline for current credit enhancements One of the ongoing themes in the CMBS market, over the past few years, has been the increased differentiation in values between deals, even of the same vintage. While this has largely been true in the more credit sensitive bonds, since the market turned down, these variations have increased even at the super-senior level. For example, while there are plenty of last cash flow super seniors trading well inside of S+100 bp, there are others where the spread is in the S+high-100 bp area or wider.

Of course, there are many factors that help shape the market’s perception of a weak deal versus a strong deal. Some are easily measurable such as the delinquency pipeline, existing appraisal reductions or interest shortfalls. Others, such as liquidity or shelf sponsorship, are more difficult to quantify.

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20 September 2012


One factor that certainly comes into play is a bond’s credit enhancement level. All else equal, a bond with greater enhancement levels should arguably trade tighter.

While it is easy to see on any individual tranche the absolute level of credit enhancement, and even how that has changed since origination, we thought it would be instructive to look at what credit enhancements have done, in the aggregate, over time. This would provide a baseline to make a relative comparison to the move in credit enhancement levels across the various sectors.

We have focused our analysis on the 2005 to 2008 conduit deals. The general results are somewhat intuitive but, we believe, still interesting:

Although there can be a large move in a single deal’s credit enhancement level, for the most part, the average (and median) level has not gravitated far from the original level at the top of the capital stack.

Super-senior credit enhancements have generally risen since origination and over the past year. Relatively few deals have seen a decline in super-senior enhancement levels.

AM enhancements have, on average, stayed closer to their original mark than tranches above or below them in the capital stack. More AM tranches have seen subordination levels rise, compared to levels at origination, than fall.

The median and average AJ enhancement level is virtually unchanged versus levels at origination, totaled across the four vintages. However if we exclude the 2005 vintage, there is a more pronounced fall for the other three legacy vintages.

A similar story emerges in the original AA-rated bonds where the overall decline is muted by the inclusion of the 2005 vintage.

Generally, 2005 vintages have seen a deleveraging with average enhancements up across super-seniors to originally-rated AAs. In contrast, the 2008 vintage has seen broad declines across the various bond categories.

The 2006 and 2007 vintages are more balanced, seeing rises in super-senior and unchanged to higher AM enhancement levels, but declines in subordination levels, compared to those at origination, at the AJ and AA level.

2006 - 2008 AJ C/E levels average down 9% since origination We start with a look at the change in AJ enhancement levels. AJs have seen some of the biggest moves in enhancement levels and are widely considered the fulcrum security, with respect to losses, across many transactions.

In Exhibit 30, we look at the aggregated AJ enhancement levels (for 2005-2008 vintage), at origination, and how they have changed since the end of 2010. The chart shows the high, low and median levels.

We use the median (or mid-point level of the distribution) as well as straight average throughout the analysis. The averages we have calculated are all by count (rather than weighted by deal or tranche balance). In addition, we have only chosen one representative tranche from each deal to avoid double-counting deals with multiple tranches in the same waterfall position.

20 September 2012


Exhibit 30: 2005-2008 AJ enhancement levels over time (high, low, median)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Source: Credit Suisse, Trepp

As we will see through most of this analysis, the median level has not gravitated far from its original point but, in the case of AJs, has drifted slightly lower over time. The deviation from one deal to another has increased dramatically over time. At the top end of the spectrum, there are some AJs that now carry 25% subordination (WBCMT 2005-C19) while other AJ tranches have seen their enhancement levels fall to under 5% (such as MLCFC 2007-7).

The 2005 vintage is boosting the overall average higher. We see that in Exhibit 31, where we show some summary statistics, based on the change in enhancement levels since origination, broken out by vintage. We show these changes on both an absolute and percentage change basis.

Exhibit 31: Changes in AJ subordination levels (absolute and percentage) by vintage

Original C/E

Changes since origination

% changes since origination

Avg C/E

change

Median C/E

change

Largest C/E

decrease

Larges C/E

increase

Avg % C/E

change

Median % C/E

change

Largest % C/E

decrease

Largest % C/E

increase

2005 12.7 2.5 1.8 -3.3 11.5 20% 14% -28% 88%

2006 12.0 -0.9 -0.7 -6.2 2.4 -8% -6% -55% 25%

2007 12.1 -1.3 -1.0 -7.8 1.6 -11% -8% -64% 14%

2008 13.5 -1.9 -1.3 -5.0 -0.1 -14% -9% -41% -1%

2006-2008 12.1 -1.1 -1.0 -7.8 2.4 -9% -8% -64% 25%

Total 12.3 0.0 -0.1 -7.8 11.5 0% -1% -64% 88% Source: Credit Suisse, Trepp

While the 2005 vintage shows a rise in the average AJ subordination level, the later vintages are all down on average (about 1% in total enhancement corresponding to around an 9% change). The biggest drop in absolute subordination (and on a percentage level) stems from the above mentioned MLCFC 2007-7 where the AJ subordination is now just 4.3%, down nearly two-thirds from its original 12.1%. As we noted back in April, MLCFC 2007-7 has started to take losses at the originally rated single-A level.

The 2008 cohort has no AJs that have seen the enhancement level rise since origination.

In Exhibit 32, we show the distribution of changes, since origination, based on the percentage change up or down. These are further stratified by vintage year.

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20 September 2012


Exhibit 32: Distribution of changes in AJ credit enhancement since origination in percentage terms

05

101520253035404550

20082007

20062005


The distribution of tranches is shifted to the left (indicating overall declining enhancement levels). The shift is more pronounced if one eliminates the 2005 vintage which has, generally, seen AJ subordination levels rise since origination.

AAs show a similar story but with more slippage We see a similar story when we analyze originally rated double-A bonds. In this case, the average subordination level has dropped about 40 bp across the four legacy vintages, but that is inflated because of the performance of the 2005 deals. The average credit enhancement level of 2005 tranches is actually up 1.7% to 12.6% for 2005 deals.

For the remainder of the vintages (2006 to 2008), the subordination level has dropped 1.4% since origination from 10.8% to 9.4% (a 13% decline). We look at the distribution of the percentage change in credit enhancement levels in Exhibit 33.

Exhibit 33: Distribution of changes in originally rated AA credit enhancement since origination in percentage terms

05

101520253035404550

2008

2007

2006

2005


20 September 2012


AM subordination remains close to original levels While there has also been some drift in the subordination levels of AMs, we find that these have generally shifted less, over time, than the tranches above or below them. In Exhibit 34, we once again look at the changes in subordination level, from origination, on an absolute and percentage basis.

Exhibit 34: Changes in AM subordination levels (absolute and percentage) by vintage

Original C/E

Changes since origination % changes since origination

Avg C/E

change

Median C/E

change

Largest C/E

decrease

Larges C/E

increase

Avg % C/E

change

Median % C/E

change

Largest % C/E

decrease

Largest % C/E

increase

2005 19.8 4.3 3.6 -1.1 16.4 22% 18% -6% 82%

2006 19.8 0.7 0.7 -3.6 4.5 3% 3% -18% 27%

2007 19.8 0.0 0.1 -5.7 3.3 0% 1% -29% 17%

2008 19.6 -1.3 -0.9 -3.4 0.4 -7% -5% -17% 2%

2006-2008 19.8 0.2 0.3 -5.7 4.5 1% 1% -29% 27%

Total 19.8 1.2 0.9 -5.7 16.4 6% 5% -29% 82% Source: Credit Suisse, Trepp

Once again, the 2005 vintage has seen the largest increases, with the median subordination level rising 3.6%, from origination. In contrast to the AJs, however, the 2006 and 2007 vintages have seen slight increases in their median levels (compared to slight declines on the AJ tranches for these cohorts). The 2008 vintage AM tranches, however, have seen credit enhancement generally deteriorate and only very small rises on the two deals that are higher today.

We also see, in Exhibit 35, that even excluding the 2005 vintage, the AMs have a slightly higher bias toward rising enhancements (73 deals) over those that have declined since origination (55 deals).

Exhibit 35: Distribution of changes in AM credit enhancement since origination in percentage terms

0

10

20

30

40

50

60

70

2008200720062005


We thought it interesting that despite the large number of 2007 loans that have reached their scheduled maturity, in the first part of this year, and the general difficulty in refinancing these loans, the average 2007 AM subordination levels have risen slightly since the end of 2011. We show the progression of the 2007 AM levels in Exhibit 36.

20 September 2012


Exhibit 36: 2007 AM enhancement levels over time (high, low, median)

10.0

15.0

20.0

25.0

30.0

35.0

40.0


LCF AAA subordination levels mostly higher, except for 2008 The vast majority of last cash flow senior bonds have seen a rise in subordination levels versus their original credit enhancements. In fact, only 17 deals have seen a fall in these senior subordination levels, compared to 111 that have risen (Exhibit 37). In addition, for those deals that have seen a decline, the drop has generally been modest.

Exhibit 37: Distribution of changes in AM credit enhancement since origination in percentage terms

0102030405060708090

2008200720062005


Once again, the 2008 vintage marks the exception. The median subordination, as of August, for the 2008 transactions, stands at 29.7% compared to 30.1% at origination.

Similar to what we noted at the AJ level, there has been a rise in the average and median statistics for the 2007 cohort as well over the past few months. As of August, the average had risen to 31.4%, up from 30.0% at the end of 2011.

20 September 2012


Consumer ABS Market Views Spreads in the consumer ABS market remained stable last week despite a heavy new issue calendar. With about $2B in Auto ABS new issuance, some investors chose to recycle their Auto ABS holdings in newer deals at higher concessions, leading to some selling in the secondary market. We expect this trend to continue into the near future as the future pipeline still seems quite full. However, despite such selling pressure, demand continues to be robust and spreads held in quite well.

The franchise market continues to tighten as with credit sectors; for example, DPABS tightened by 35bp in the last week and is currently offered at 220bp, while CAJUN has tightened by about 20bp over the same period.

We remain neutral on prime Autos seniors, as we think there is limited scope for further tightening given the market dynamics. We, however, remain overweight subprime autos and continue to like SDART seniors due to wider spreads. We also find value in highly rated subprime subordinates and prime auto subordinates in general due to their faster deleveraging and strong collateral performance. We also remain overweight on longer-duration FFELP paper and think that as the incremental grab for yield continues, shorter-duration PSL has the potential outperform. We remain neutral on 2yr COMNI as we believe that the potential for further tightening is limited. Franchise deals, on the other hand, still have room to further tighten, in our view.

Credit Card Performance Review August performance was strong almost across the board in what was a repeat of June performance with one exception – American Express. The weaker performance for Amex was more a function of the burnout of its strong June and July performance. Losses for Discover continued to decline for the third straight month. With the exception of COMET, early-stage delinquencies remained stable, while late-stage delinquencies continued to improve. Excess spread and yields were a mixed bag, varying across issuers. August numbers reiterate the strength of underlying sector performance, and we expect further stabilization in performance in the medium term.

American Express posted weaker results in August, with net losses reversing their three-month declining streak, increasing 16bp to 2.11%. This, coupled with a 64bp decline in principal payment, translated into a weak month for Amex. Early- and late-stage delinquencies remained stable within 1bp. Yields increased 23bp, whereas excess spread remained flat for the month.

Bank of America’s performance was strong on all measures. Last month’s strong delinquency results extended into this month, with late stage delinquencies dropping another 6bp. Net charge-off and early delinquencies also fell. Yield, excess spread, and principal payment increased by 23bp, 36bp, and 51bp, respectively, this month.

COMET’s performance was stronger than last month. Net losses fell 27bp to 2.68%, now at an all-time low. We note that early and late delinquencies ticked up 3bp and 2bp, respectively. While yields fell this month, excess spread and monthly payments increased.

CHAIT results were strong. Net losses fell 97bp to 3.61%, reversing last month’s increase. Early-stage delinquencies remained stable, with a negligible 1bp uptick, whereas late stage fell 2bp. Principal payment decreased, whereas excess spread and yield increased this month.

Chandrajit Bhattacharya +1 212 325 1546

[email protected]

Marc Firestein +1 212 325 4379

[email protected]

20 September 2012


Citibank’s results were also strong. Net losses fell 50bp to 3.78%, reversing last month’s increase. Early-stage delinquencies were flat, whereas late-stage delinquencies dropped 5bp yet again. Principal payment increased, whereas excess spread and yield decreased this month.

Discover posted better overall results. Net losses continued their decline, falling another 3bp to 2.19%, coming off a 18bp drop in the prior month. Early-stage delinquencies were flat, but late stage continued to improve, falling another 5bp month over month. Yield, monthly payment rates, and excess spread decreased this month, reversing the July rise.

Month-over-Month Performance Snapshot

Exhibit 38: Early DLQs mostly stable Exhibit 39: Excess Spread mixed this month

0.4

0.9

0.5 0

.6 0.6

0.9

0.4

0.9

0.5 0

.6 0.6

0.8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Am

ex

Ca

p O

ne

Disco

ver

Ch

ase

Citi

Bo

fA

Ear

ly D

Q r

ate

Jul-12

Aug-12

14

.6

13

.8

13

.6

10

.2

10

.0

9.2

14

.6

14

.1

13

.3

11

.3

9.8

9.5

4

6

8

10

12

14

16

18

20

Am

ex

Ca

p O

ne

Disco

ver

Ch

ase

Citi

BofA

Exc

ess

sp

rea

d

Jul-12

Aug-12

Source: Credit Suisse, company reports Source: Credit Suisse, company reports

Exhibit 40: Charge-off rates declined across the board – exception Amex

1.9

5

2.9

5

2.22

4.5

8

4.2

8

5.0

5

2.1

1

2.6

8

2.19

3.6

1

3.7

8

4.94

1.9

2.4

2.9

3.4

3.9

4.4

4.9

5.4

Amex Cap One Discover Chase Citi BofA

Ne

t ch

arge

off

rat

e

Jul-12

Aug-12

Source: Credit Suisse, company reports

20 September 2012


Long-Term Performance Snapshot Exhibit 41: Long-term early DLQ trends continue to improve and stabilize

0.30.5

0.70.91.11.31.51.71.92.12.3

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Ear

ly D

Q r

ate

Amex Cap OneDiscover ChaseCiti BofA


Exhibit 42: Excess spread (boosted by the discount option) has increased over the longer term (%)

2

4

6

8

10

12

14

16

18

20

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Exc

ess

sp

rea

d

Amex Cap One

Discover Chase

Citi BofA


Exhibit 43: Late-stage delinquency trends have improved and stabilized over recent months (%)

0

1

2

3

4

5

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

90+

DQ

rat

e

Amex Cap OneDiscover ChaseCiti BofA


20 September 2012


Exhibit 44: Charge-off performance now at mid-2008 levels and trending down

2

6

10

14

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Ne

t ch

ag

e o

ff r

ate

AmexCap OneDiscoverChaseCitiBofA


Monthly Consumer Debt Report card Total Consumer Debt fell 1.45% in July 2012, driven by a 6.8% drop in Revolving Debt

July data on consumer credit released by Federal Reserve on September 10 show that total consumer debt dropped for the first time in 11 months, reversing the trend of continuous month-over-month increases seen since the fall of last year. Non-revolving credit continues to increase, although the pace of increase has ground to a marginal 1% rate, unlike the double-digit gains at the end of last year.

Total consumer debt (Exhibits 47 and 48) fell $3.3bn in July, which is a 1.45% seasonally adjusted decline over the previous month (Exhibits 45 and 46). This decline was driven by a $4.8bn decline in revolving debt, which marks a 6.8% seasonally adjusted decline over June, the largest monthly decline in 15 months. Revolving debt had declined $3.2bn in June as well. June and July combined marked a $8bn decline in revolving credit, which offset the bulk of increase in May this year. Non-revolving debt (mainly comprised of auto and student loans) increased marginally, up $1.5bn, however, inching up a point, but still marking the lowest gain in over 11 months.

Exhibit 45: Monthly percentage change in total consumer credit since 2000 and …

Exhibit 46: … since 2011

% Seasonally adjusted annual rate % Seasonally adjusted annual rate

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

200

0-0

1

200

0-0

5

200

0-0

9

200

1-0

1

200

1-0

5

200

1-0

9

200

2-0

1

200

2-0

5

200

2-0

9

200

3-0

1

200

3-0

5

200

3-0

9

200

4-0

1

200

4-0

5

200

4-0

9

200

5-0

1

200

5-0

5

200

5-0

9

200

6-0

1

200

6-0

5

200

6-0

9

200

7-0

1

200

7-0

5

200

7-0

9

200

8-0

1

200

8-0

5

200

8-0

9

200

9-0

1

200

9-0

5

200

9-0

9

201

0-0

1

201

0-0

5

201

0-0

9

201

1-0

1

201

1-0

5

201

1-0

9

201

2-0

1

201

2-0

5

Percent change of total consumer credit

Percent change of total revolving consumer credit

Percent change of total nonrevolving consumer credit

-10

-5

0

5

10

15

Percent change of total consumer credit

Percent change of total revolving consumer credit

Percent change of total nonrevolving consumer credit

Source: Credit Suisse, Federal Reserve Bank Source: Credit Suisse, Federal Reserve Bank

20 September 2012


Exhibit 47: Consumer credit owned and securitized since 2000 and …

Exhibit 48: … since 2011

Seasonally adjusted level, $mm. Break in data non revolving series in Dec’10 Seasonally adjusted level, $mm

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2000

-01

2000

-05

2000

-09

2001

-01

2001

-05

2001

-09

2002

-01

2002

-05

2002

-09

2003

-01

2003

-05

2003

-09

2004

-01

2004

-05

2004

-09

2005

-01

2005

-05

2005

-09

2006

-01

2006

-05

2006

-09

2007

-01

2007

-05

2007

-09

2008

-01

2008

-05

2008

-09

2009

-01

2009

-05

2009

-09

2010

-01

2010

-05

2010

-09

2011

-01

2011

-05

2011

-09

2012

-01

2012

-05

Nonrevolving consumer credit owned and securitizedRevolving consumer credit owned and securitized

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000Nonrevolving consumer credit owned and securitizedRevolving consumer credit owned and securitized

Source: Credit Suisse, Federal Reserve Bank Source: Credit Suisse, Federal Reserve Bank

Quarterly Household Debt Report card Total Household Debt fell 0.5% in 2Q 20122. Consumers add more Auto and Student Loan Debt while amassed Mortgage Debt continues to Shrink

The Federal Reserve Bank of New York (FRBNY) released its quarterly Household Debt and Credit report at the end of last month. The report, based on data from the FRBNY consumer credit panel, shows consumers continue to de-lever, with total household debt contracting by $53 billion in the second quarter of this year, driven mainly by a drop in mortgage outstanding balance, while credit performance continues to strengthen.

Consumers added more auto loans and student loans, which drove a net 0.4% increase in non-mortgage household debt. Mortgage debt, on the other hand, continues to shrink, dropping another 0.5% or $40B during 2Q 2012. Per the FRBNY report, total household debt as of June 30, 2012 was at $11.38 trillion, of which $8.15 trillion was mortgages (Exhibit 50).

Exhibit 49: Quarter-over quarter change: direction in which various metrics moved during 2Q 2012

Aggregate consumer debt Origination Perfromance

Overall DQ Across Sectors Auto Loan Originations

New Bankruptcy Filings (from same

qtr last yr)

Aggregate consumer debt Student Loan Originations 90+ DQ for HELOC

Mortgage balances Aggregate Credit Card LimitsRate of transition from early (30‐60

days) into serious (90 +) for Mortgages

HELOC balances# credit inquiries

Cure from early (30‐60 days) into

Current for MortgagesNon‐Mortgage (Auto, Credit Card,

Student Loan, Others) Pace of New Foreclosure additions

90+ DQ for Auto

Student Loan DQ Rate Source: Credit Suisse, FRBNY and FRBNY Consumer Credit Panel/Equifax

20 September 2012


Overall consumer debt performance remained positive, however. Delinquencies fell from the previous quarter. While the number of consumers filing for new bankruptcies (denoted by new bankruptcy notations added to the consumer credit report) increased during the quarter as compared to the previous quarter, the number of bankruptcies fell 15.7% when compared to same quarter last year, marking the sixth consecutive drop on a year-over-year basis.

The Auto loan sector looked particularly strong in Q22012. Originations were up 14.2% for the quarter, whereas 90+ delinquencies dropped to 4.2% from 4.5% during the previous quarter. Student Loan 90+ delinquencies increased, however, against the backdrop of rising student loan debt. The 90+ delinquencies fell for Mortgages, Credit Cards and Auto loans, but continued to rise for HELOC and Student Loans (Exhibit 53).

Consumers in CA, AZ, and FL continued to trim their debt, with a continued decline in total debt per capita. The 90+ delinquency rate on total debt continued to drop in these states (more so in CA and FL), driven by a drop in mortgage 90+ DQ. Also, the quarterly transition rates from current to 30+DQ and from current through 60 days to 90+ DQ for these states declined quarter over quarter but stayed flat for FL. The percentage of new foreclosures fell as well for these three states. Performance in NV worsened in Q2 2012, with the 90+ DQ share already the highest among states, it also ticked up in the previous quarter, primarily driven by mortgages. The large 1Q 2012 declines in transition rates in NV from current to 30+DQ and current through 60 days to 90+DQ stalled in 2Q 2012, with both metrics ticking up in 2Q 2012. The silver lining for NV though was that its large decline in foreclosure rate continues, with new foreclosure rates now well below AZ and FL.

Exhibit 50: Total household debt balance Exhibit 51: Number of accounts by loan type Mortgage count includes closed end 1st & 2nd lien loans

Source: FRBNY and FRBNY Consumer Credit Panel/Equifax Source: FRBNY and FRBNY Consumer Credit Panel/Equifax

Exhibit 52: Total balance by delinquency status Exhibit 53: Percentage of balance 90+ DQ by loan type

Source: FRBNY and FRBNY Consumer Credit Panel/Equifax Source: FRBNY and FRBNY Consumer Credit Panel/Equifax

20 September 2012


CDO / CLO Rolling 06/07-vintage CLO equities into new CLO equities? Given a significant rally since mid-August, secondary CLO equities of 2006-2007 vintages are trading at a loss-adjusted breakeven yield in the mid-teen percentages, consistent with the typical return target of new-issue CLOs. In this section, we show why equity holders, especially those with equity trading significantly higher than their NAV levels, should sell into the rally and reinvest the proceeds into new-issue CLO equities.

The Fed’s announcement of another round of stimulus (the so-called “QE3”) and the pledge to keep the interest rates low until mid-2015 inspired even more aggressive yield-chasing by investors of risky assets. As a result, secondary CLO equity tranches continue to trade strongly – for those issued in 2006 and 2007, the average default risk-adjusted breakeven yield now stands around 15%. As a comparison, similar positions traded close to 20% just two months ago.

To illustrate our points, we randomly selected two equity tranches that are trading at an implied yield of around 15% under base-case scenarios. Exhibit 54 and Exhibit 55 show the current market color and NAV (Net Asset Value) of these equity tranches, along with some important information regarding these two CLOs and the main characteristics of the underlying collateral.

Exhibit 54: Sample secondary CLO equity tranches

Deal Name Closing Date End of

Reinvestment Period

Current Equity Market Price

Implied Break-even

Yield

Equity NAV

Current (annualized)

Equity COC***

End of Non-Call Period

Sample #1 7/20/2006 8/20/2013 around $110 15%-16%* $107 25%-30% 8/20/2010 Sample #2 4/11/2007 4/11/2013 high 90s 15%-16%** $72 close to 40% 4/11/2011

Source: Credit Suisse, INTEX * 3 CDR, 20 CPR, 65% recovery, 12-month recovery lag ** 5 CDR, 20 CPR, 65% recovery, 12-month recovery lag *** Based on outstanding notional of the equity tranches

As we can see, the collateral of Sample #2 is of worse credit quality than that of Sample #1. Consequently, we assign a higher default rate – 5 CDR vs. 3 CDR – to running the analysis on its equity tranche.

Exhibit 55: Sample secondary CLO equity tranches – underlying collateral information

Deal Name Junior

OC Test Cushion CCC and Below & Trade below 80

Non-Leveraged Loan Assets

Collateral WAS

Collateral WAL WARF

% of Collateral with LIBOR

Floor Sample #1 8.98% 2.60% 7.50% 400 4.3 2311 64% Sample #2 6.09% 10.20% 2.70% 393 4.3 2679 94%

Source: Credit Suisse, INTEX

In both cases, the implied breakeven yields under the default and prepayment assumptions turn out to be around 15%.

It is very important to understand that the two main drivers of the valuations are: NAV and COC (Cash-on-Cash) yield. Comparing the two samples, the equity tranche of Sample #1 has a lower COC yield but a much higher NAV – its market price is only several points higher than its NAV, while the equity tranche of Sample #2 trades at high 90s mainly because of its higher COC yield, despite the fact that its NAV is almost 25 points below the market price.

David Yan +1 212 325 5792

[email protected]

20 September 2012


In our view, all else equal, we would prefer Sample #1 over Sample #2 under these market prices, for the following main reasons:

1) Sample #1 trades only a little over its NAV, while Sample #2 trades significantly higher than its NAV;

2) Related to the previous point, the significant premium of the market price over NAV makes the probability of Sample #2 being called by the equity holders lower – or in other words, the embedded value of the call option is lower for Sample #2;

3) Because of the second point, the exposure to prepayment risk is higher for Sample #2. The reason is that if the refinancing/prepayment on the loans picks up due to tighter spreads or cheaper financing cost, equity holders of Sample #2 will have to accept lower current yield/excess spread as they don’t want to call the deal, losing the significant premium of market price over NAV. In contrast, the equity holders of Sample #1 could just call the deal if the cash flows shrink;

4) As mentioned earlier, the credit quality of the underlying pool of Sample #1 is much higher than that of Sample #2, in terms of exposure to “problematic” assets (rated CCC or below and trading below 80), WARF, and the exposure to non-leveraged loan assets, such as structured finance securities and other CDOs/CLOs. Thus, the downside tail risk of Sample #1 is lower than Sample #2.

Based on these arguments, we believe the holders of the equity tranches of CLOs such as Sample #2 should have a stronger incentive to sell their positions into the rally, which leads to answering our main question of this section: “Should equity holders of 06/07-vintage CLOs roll into new-issue CLO equities?”

First, based on our previous discussion, it makes more sense for holders of equity tranches trading significantly higher than their NAV – mainly due to higher COC – to roll their positions into new-issue CLO equities, since the significant premium has already been priced into higher cash flows and they are exposed to higher prepayment risk, as explained above.

In addition, holders of new-issue CLO equities could generally enjoy the following benefits:

1) Longer reinvestment periods. Most new CLOs currently are structured with a reinvestment period of three to four years, which means the reinvestment period will end in 2015 or 2016, instead of 2013 or 2014 for 2006-2007 vintage CLOs;

2) New-issue CLOs have “cleaner” collateral pools, which means lower tail risk for equity holders. For example, typically new-issue CLOs will have no exposure to structured finance securities or CDOs/CLOs, and very little, if any, exposure to “problematic” credits (rated CCC or below and traded below 80). Exhibit 56 lists some main characteristics associated with three randomly selected new CLOs issued in the first half of 2012;

Exhibit 56: Sample new-issue CLO

Closing Date

End of Reinvestment Period

Collateral WAS

Collateral WAL WARF

Equity NAV

CCC and Below &

Trade below 80

Junior OC Test Cushion

% of Collateral with LIBOR

Floor

Non-Leveraged

Loan Assets

2/15/2012 4/15/2015 405 5 2535 70.5 0.16% 4.18% 77% 0% 1/20/2012 1/9/2015 441 5.4 2669 68 0% 4.32% 83% 0.70% 5/8/2012 4/16/2015 438 5.1 2559 71.2 0% 4.12% 65% 0.10%

Source: Credit Suisse, INTEX

3) In certain new-issue CLOs, the issuer has the right to refinance the debt tranches without calling the deal, which benefits the equity holders.

20 September 2012


To sum up, given the sizable rally, secondary equity tranches of 2006-2007 vintage CLOs now trade at an implied yield level consistent with the targeted base-case loss-adjusted return (IRR) of new-issue CLOs, which is around 15% (on a par basis). Thus, we believe it is sensible for holders of these equity tranches to roll their positions – especially those that trade significantly above their NAV levels – into new-issue CLO equities, to take advantage of less-risky collateral pools and higher optionality value.

CLO Market Recap – Week of September 17 New-issue CLOs continued their strong momentum into September. Six deals, or $2.6bn in total, were issued last week alone, bringing the YTD total tally close to $29bn. In the meantime, we have seen spreads generally grind in – for example, AAA spreads finally now trade around 145bps to 147bps, and BB tranches are priced around the 725bps-775bps range. Despite the tightening, given that CLO spreads – especially AAA tranches – are still wide compared to other securitized products such as CMBS, we expect the spreads to come in further.

20 September 2012


Modeling and Analytics Model Policy Risk Testing potential policy impacts on agency prepayment and valuation through Locus calculator New FHFA reps and warrant framework, additional HARP features, g-fee increase, QE3 MBS basis tightening, the new streamlined short sale policy, potential loosening up lock-in effect

We released several new “dials” on Locus calculator to model potential prepayment and valuation impact from policies that are currently in pipelines, or potentially in the future.

Additional HARP model features

Re-HARP date: While the new Menendez-Boxer bill took out the Re-HARP provision, policies to extend the refinance relief remain a tail risk. The “re-HARP” dials allow borrowers to examine impact from this policy risk.

Cross servicer HARP boost: the new FHFA reps and warrant framework will potentially boost cross servicer HARP refinance starting with December prepayment. We plan to release our forecasts and models next month to address this issue.

Model potential loosening of agency mortgage underwriting due to new FHFA reps and warrant framework

The new FHFA reps/warrants framework establish a bright line of put back relief where borrowers stay current for consecutive 36 months. We believe this framework should help lenders loosen the current extremely tight credit box. We show how to utilize the current “Macro Credit Variable” dial to model this issue.

Mortgage rates shocks due to g-fee increase and QE3 MBS basis tightening

CS6.6 assumes g-fee will increase by 20bps over 2 years, resulting in a long term 75bps primary/secondary mortgage rate spread. Alternative g-fee increases can be modeled through existing “primary/secondary spread” dials.

MBS basis tightening due to Fed QE3 MBS purchase can be modeled through existing “mortgage/swap spread” dials and “CC Mult Grid” dials.

Increasing housing turnover for high CLTV borrowers due to the new FHFA streamlined short sale policy

CS6.6 assumes high CLTV borrowers are severely curtailed in housing turnover. The new FHFA streamlined short sale policy may provide relief for these borrowers. We show how to use the new “short sale relief” dials to model this policy risk.

What’s true long term housing turnover if majority of mortgage universe is in deep discount

Deep discount mortgages have low turnover speeds (“lock-in effect”). The default lock-in effect in CS6.6 was fitted to historical data when only a small portion of mortgage universe is in discount. We discuss potential policy risk if rates selloff leave the majority of mortgage universe in deep discount. A new set of “Lock-in relief” dials allows users to model this policy risk.

We plan to release a new model version CS6.7 with a package of default settings for these issues when they can be quantified with more certainty.

David Zhang +1 212 325 2783

[email protected]

Yihai Yu +1 212 325 7922

[email protected]

20 September 2012


FHFA announced recently new reps and warrants framework, g-fee increases, and streamlined short sale policy. These announcements follow a long list of mortgage related policy changes since the housing crisis. In fact current regime of refinance, housing sale, default buyout, mortgage rates are all results of various policy changes. The difficulties in modeling policy changes include:

uncertainty of policy being enacted, timing and policy details

how effective these policies would achieve their objectives

policy changes beyond immediate future are even more speculative

We have released series of model “dials” so that users can test potential prepayment and valuation impacts from various policy issues.

Additional HARP related model features

The new FHFA reps and warrant framework will potentially boost cross servicer HARP refinance starting with December prepayment. We plan to release our forecasts and models next month to address this issue.

While the new Menendez-Boxer bill took out the Re-HARP provision, policies to extend the refinance relief remain a tail risk. The “re-HARP” dials allow borrowers to examine impact from this policy risk.

Exhibit 57 shows a screen shot of Locus calculator with default and an alternative “Re-HARP” setting. The column head “User Expanded HARP Eligibility Date” specifies a hypothetical new HARP eligibility cutoff date. Default value is current HARP eligibility date of June 2009. The column head “User Expanded HARP Start Date” specifies a hypothetical new Re-HARP program effective date.

Exhibit 57: Locus calculator Re-HARP dials


The prepayment assumption for the Re-HARP program is similar to our HARP2.0 model assumption

Flat CLTV curve for refinance: overall refinance propensity will not be affected by borrowers’ CLTV levels

Overall 20% increase in prepayment response with similar ramping up schedule as in our HARP2.0 model; Given that these borrowers have previously gone through the HARP refinance process, conceivably their second HARP refinance propensity could be much higher.

Exhibit 58 shows a sample of potential prepayment and valuation impact under the Re-HARP policy change risk. While the impact at vintage cohort level might be small, the impact for high CLTV pools can be significant. For FN 4.5s 2011 cohorts, the 100-105 CLTV sub-cohorts can see a 39bps OAS drop and OAD shorten by almost half, compared with relatively smaller impact for “FN 4.5 360 2011 LTV 80-90” cohort. “FN 4.5 360 2011 LTV 100-105” is the Locus calculator mnemonic for 2011 FN4.5s 100-105 CLTV cohort.

20 September 2012


Exhibit 58: Potential Valuation Impact under hypothetical Re-HARP scenario As of 9/13/2012, assume Re-HARP starts in September 2013, CPR forecasts based on constant rates assumption

“FN 4.5 360 2011 LTV 100-105” is the Locus calculator mnemonic for 2011 FN4.5s 100-105 CLTV cohort.

Base Re-HARP Change

Security Price OAS OA Dur LT CPR OAS OA Dur LT CPR OAS OA Dur LT CPR

FN 3.5 360 106.37 -1.6 3.14 17.5 -4.4 2.94 17.7 -2.8 -0.20 0.2

FN 4 360 107.25 7.2 1.92 26.6 1.6 1.63 27.8 -5.6 -0.29 1.2

FN 4.5 360 108.11 13.3 1.48 31.3 3.2 1.11 33.1 -10.1 -0.37 1.8

IFN34010 IO 14.55 627 -31 21.1 570 -34 22.0 -57 -3 0.9

IFN34011 IO 15.28 550 -32 21.3 494 -35 22.2 -56 -3 0.9

IFN34510 IO 15.53 655 -27 23.7 555 -31 25.3 -100 -4 1.6

IFN34511 IO 17.50 476 -27 23.0 386 -31 24.5 -91 -4 1.5

FN 4.5 360 2011

LTV 80-90

108.11 62 3.18 22.4 47 2.37 25.2 -15 -0.81 2.7

FN 4.5 360 2011

LTV 90-100

108.11 77 4.18 20.0 44 2.35 26.2 -33 -1.83 6.1

FN 4.5 360 2011

LTV 100-105

108.11 105 5.40 15.2 66 3.07 22.0 -39 -2.33 6.8

FN MA1092 (CQ) 108.11 121 6.02 12.3 92 4.01 16.8 -29 -2.01 4.5

FN AO6537 (CR) 108.11 127 6.20 11.6 85 3.71 18.4 -42 -2.49 6.8


FHFA new framework on reps and warrants – Potential loosening of agency mortgage underwriting

The new FHFA reps/warrants framework establishes a bright line of put back relief where borrowers stay current for consecutive 36 months. We believe this framework should help lenders loosen the current extremely tight credit box.

CS6.6 model (and previously CS6.5 model) utilizes a “Macro Credit Variable” (“MCV”) to model the time varying mortgage credit underwriting environment. MCV is defined as a refinance multiplier for best credit-worthy borrowers. The refinance environment before 2003-2006 housing bubble is used as benchmark, where MCV value is set as 1. The current tight credit environment has reduced this value to 0.5, i.e. prepayment propensity for best credit-worthy borrowers is reduced by about 50%. In addition, MCV also models credit tiering in prepayment response. Generally, tight credit underwriting environment impacts weaker credit borrowers even more.

Exhibit 59: Macro Credit Variable setting on Locus calculator Default value is “0.8/60”


20 September 2012


The default setting for CS6.6 is current MCV value of 0.5 will mean-reverting to 0.8 in 5 years. Exhibit 59 shows a screen shot of Locus calculator with default and an alternative “Re-HARP” setting. Under the Locus calculator column heading, the default value of “0.8/60” denotes the MCV mean-reverting from current value (at 0.5) to 0.8 in 60 months. An alternative “1.0/24” is used in this example, testing an optimistic scenario of quick 24 months return to pre-crisis mortgage underwriting. Exhibit 60 shows this more optimistic forward assumption leads to significant widening of OAS and shortening of OAD for lower coupons.

Exhibit 60: Valuation Impact under potential quick loosening of agency underwriting As of 9/13/2012, “optimistic” scenario assumes underwriting loosens over 2 years back to pre-crisis level., CPR forecasts based on constant rates assumption

CS6.6 Base Optimistic Underwriting

recovery assumption Change


FN 3.5 360 106.37 -1.6 3.14 17.5 -11.3 2.61 19.2 -9.7 -0.53 1.6

FN 4 360 107.25 7.2 1.92 26.6 -6.1 1.34 29.9 -13.3 -0.58 3.3

FN 4.5 360 108.11 13.3 1.48 31.3 -8.7 0.81 35.7 -22.0 -0.67 4.4

IFN34010 IO 14.55 627 -31 21.1 488 -37 24.1 -139 -6 3.1

IFN34011 IO 15.28 550 -32 21.3 389 -39 25.0 -162 -7 3.8

IFN34510 IO 15.53 655 -27 23.7 417 -35 28.2 -238 -8 4.6

IFN34511 IO 17.50 476 -27 23.0 219 -36 28.0 -257 -9 5.0


Mortgage rates shocks due to g-fee increase and Fed QE3 MBS purchase

Our mortgage rates model has 3 components

1. Primary/secondary spread: due to the current limited origination capacity, CS6.6 uses a 24 months ramp to mean revert current spread (over 120bps) to 75bps

2. A constant OAS/”fair value” current coupon yield modeled with swap curve

3. MBS/swap spread: this is the spread between actual current coupon yield and the “fair value” cc yield from 2). CS6.6 uses a 12 months ramp to mean revert current spread to long term mean.

In addition, mortgage rates processes are modeled separately for 30 year and 15 year products, as well as for FN/FH conventional and GN products.

These baseline assumptions may be impacted by various policy risk factors, for example, G-fee increase and MBS basis tightening due to Fed MBS purchase.

CS6.6 assumes conventional g-fee will increase by 20bps over 2 years, resulting in a long term 75bps primary/secondary mortgage rate spread (increased from 55bps in CS6.5 model). Alternative g-fee increases can be modeled through existing “primary/secondary spread” dials for 30 year and 15 year products. Exhibit 61 shows a screen shot of Locus calculator with IOS0410 run under default CS6.6 and 2 alternative g-fee increase scenarios. Under calculator column heading “Servicing Spread Mean Reversion 30Y”,

1. Default setting implies “0.75/24” value: long term primary/secondary spread at 75bps in 24 months, implying a 20bps g-fee increase from current level.

2. “0.85/24” value: implying an additional 10bps increase in 24 months

3. “0.85/36” value: implying an additional 20bps increase in 36 months

20 September 2012


Exhibit 61:Model alternative g-fee scenario with "primary/secondary spread" setting on Locus calculator “blank” means default value as “0.75/24”


Exhibit 62 shows impacts on prepayment and model valuation from the 3rd g-fee scenario (“additional 20bps g-fee increase over 3 years). For the lower coupon TBA stack, the 20bps additional g-fee increases reduce long term prepayment by 2-4 cpr, and significantly increase OAS and OAD.

Exhibit 62: Potential Impact under further G-fee increase As of 9/13/2012, assume g-fee increases additional 20 bps over next 3 years from current CS6.6 default “0.75/24”. CPR forecasts based on constant rates assumption

Base g-fee increase Change


FN 3.5 360 106.37 -1.6 3.14 17.5 6.5 3.43 15.2 8.1 0.29 -2.3

FN 4 360 107.25 7.2 1.92 26.6 17.4 2.18 22.7 10.2 0.26 -3.9

FN 4.5 360 108.11 13.3 1.48 31.3 24.9 1.66 28.7 11.6 0.18 -2.6

IFN34010 IO 14.55 627 -31 21.1 752 -28 17.6 125 3 -3.5

IFN34011 IO 15.28 550 -32 21.3 674 -29 17.7 124 3 -3.6

IFN34510 IO 15.53 655 -27 23.7 786 -25 21.4 131 2 -2.3

IFN34511 IO 17.50 476 -27 23.0 601 -25 20.8 124 2 -2.2


The FOMC mortgage purchase announcement on Thursday led to tightening of MBS basis. As the QE3 MBS purchase plan is open-ended, the MBS/swap basis may tighten/widen based on whether these programs meet the market’s expectations. While long term trend of MBS/swap basis can be modeled through existing “LIBOR Spread Mean Reversion” dials in the same fashion as “Primary/Secondary Spread Mean Reversion” dials discussed above, short term MBS/swap basis scenarios can be modeled using “CC Mult Grid” dials.

20 September 2012


Exhibit 63: "MBS/swap spread" setting on Locus calculator


Exhibit 63 shows a screen shot of Locus calculator with IOS0410 run under default and 2 alternative MBS/swap basis scenarios. Under calculator heading “CC Mult Grid”,

1. “-0.25/1,0.25/12,0/24” : 25bps tightening from current level, starting now (1 month), lasting 12 months, then ramping down to model default setting in 24 months

2. “+0.25/1,0.25/12,0/24”: 25bps widening from current level, starting now (1 month), lasting 12 months, then ramping down to model default setting in 24 months

Exhibit 64 shows prepayment and model valuation impacts from these two scenarios.

Exhibit 64: Potential impact under possible changes to Fed QE3 MBS purchaseAs of 9/13/2012, assume a 1 year 25bps current coupon change vs. swap curve, then reverts to 0bps over another year

Base

Change

Basis tightens 25bps Basis widens 25bps


IFN34010 IO 14.55 627 -31 21.1 -155 -1 1.7 151 3 -1.6

IFN34011 IO 15.28 550 -32 21.3 -150 -1 1.8 146 2 -1.5

IFN34510 IO 15.53 655 -27 23.7 -125 0 1.2 127 1 -1.2

IFN3451I IO 17.50 476 -27 23.0 -112 0 1.1 110 2 -1.1


Increasing housing turnover for high CLTV borrowers due to the new FHFA short sale policy

CS6.6 assumes high CLTV borrowers are severely curtailed in housing turnover. Exhibit 65 shows actual discount speeds bucketed over various CLTV intervals, and model housing turnover multipliers for these CLTV values. The new FHFA streamlined short sale policy announced on August 21st, may provide relief for these borrowers.

20 September 2012


Exhibit 65: High CLTV borrowers have much lower housing turnover rate actual discount speeds and CS6.6 model assumption

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0

1

2

3

4

5

6

7

60 65 75 85 95 110 120

Mod

el M

ultip

ler

Act

ual C

PR

CLTV buckets

Actual CPR (left axis) CS66 (right axis) Short Sale (right axis)


While it is not clear how much impact this policy may produce, we provide a hypothetical scenario in Exhibit 65, which practically flattens the CLTV slope of the housing turnover sensitivity. This is likely to be in the upper limit of the program’s effectiveness.

Exhibit 66: New "short sale policy" dial on Locus calculator


Exhibit 66 shows a screen shot of Locus calculator with IOS0410 run under default CS6.6 (no “shot sale” relief) and the alternative “shot sale relief” scenario described in Exhibit 65 . Under calculator column heading “Short Sale Effect”, default is set as “FALSE”, while “TRUE” setting will evoke the alternative scenario. Exhibit 67 shows prepayment and model valuation impact from the alternative “short sale relief” scenario.

Exhibit 67: Potential Impact under the new FHFA short sale policy assume a 50% flattening of "CLTV curve" for Housing turnover;

Base short sale Change


FN 4.5 360 2011 LTV 80-90

108.11 62 3.18 22.4 62 3.18 22.4 0 0.00 0.0

FN 4.5 360 2011 LTV 90-100

108.11 77 4.18 20.0 76 4.13 20.3 -1 -0.05 0.2

FN 4.5 360 2011 LTV 100-105

108.11 105 5.40 15.2 103 5.24 15.7 -2 -0.16 0.5

FN MA1092 (CQ) 108.11 121 6.02 12.3 119 5.77 13.1 -2 -0.25 0.8

FN AO6537 (CR) 108.11 127 6.20 11.6 125 5.77 13.0 -2 -0.43 1.4


20 September 2012


Uncertainties in Lock-in effect

Deep discount mortgages have low turnover speeds (“lock-in effect”) as the higher new mortgage rates act as economic disincentive. While the default lock-in effect in CS6.6 was fitted to historical data of discount mortgage prepayment, these historical behavior may not be good benchmark going forward.

Because mortgage rates have been generally in decreasing trend since 1980s, historically only a small portion of mortgage universe was in discount and do not stay discount for very long period. On the other hand, the current mortgage universe are increasingly concentrated in very low coupons, owing to recent long period of low mortgage rates. If mortgage rates sell off significantly and stay high over long period, for example, in an inflation scenario, housing turnover assumption from CS6.6 model can be very low for majority of mortgage universe. The resulting hardship for large segment of society and impact on economic productivity may lead policy attempts to lessen the “lock-in” effect. Potential policy initiatives can include:

Making conventional mortgage assumable: this may lessen the “lock-in” effect for borrowers, but will increase “lock-in” for MBS investors

Emulating Danish mortgage system where prepayment is “market-based”, borrowers can mark-to-market and re-mortgage with a lower principal but higher note rate mortgage: this may lessen the “lock-in” effect for borrowers, but will increase “lock-in” for MBS investors

Government may introduce new tax policy and new affordable mortgage and rental products to cushion the effect of higher new mortgage rates and increase the mobility of borrowers: this may lessen the “lock-in” effect for borrowers, and benefit MBS investor.

We added a new set of “Lock-in relief” dials to test impact from this policy uncertainty. Exhibit 68 shows CS6.6 “lock-in” default model assumptions and an alternative “lock-in” scenario that reduces the default “lock-in” effect by 50%.

Exhibit 69 shows a screen shot of Locus calculator with IOS0410 run under default CS6.6 and the alternative “lock-in” scenario. Under the calculator column heading “User Lock-in relief Start Date”, users can input the date when the alternative “lock-in” scenario becomes effective (blank indicates default CS6.6 model).

Exhibit 68: Turnover lock-in assumptions in CS 6.6 lock-in dials can "rotate" the housing turnover slope versus incentive

0.4

0.6

0.8

1

-0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6

Tur

no

ver

mu

ltip

lier

Incentive

CS66 lock-in alternative lock-in


20 September 2012


Exhibit 69: New Lock-in dial on Locus calculator


Exhibit 70 shows sample impact on prepayment and valuations due to the alternative “lock-in” relief scenario. OAS model valuations are generally sensitive to base housing turnover assumptions. These assumptions are subject to policy risk.

Exhibit 70: Potential valuation impact under alternative lock-in assumptions As of 9/13/2012, assume alternative lock-in effect starts in September 2013

Base alternative lock-in Change


FN 3.5 360 106.37 -1.6 3.14 17.5 6.5 2.91 17.5 8.1 -0.23 0.0

FN 4 360 107.25 7.2 1.92 26.6 13.5 1.75 26.6 6.3 -0.17 0.0

FN 4.5 360 108.11 13.3 1.48 31.3 17.7 1.36 31.3 4.4 -0.12 0.0

IFN33510 IO 13.41 674 -32 15.9 612 -31 15.9 -62 1 0.0

IFN34010 IO 14.55 627 -31 21.1 574 -30 21.1 -53 1 0.0

IFN34011 IO 15.28 550 -32 21.3 494 -31 21.3 -56 1 0.0

IFN34510 IO 15.53 655 -27 23.7 614 -26 23.7 -41 1 0.0

IFN34511 IO 17.50 476 -27 23.0 432 -26 23.0 -44 1 0.0


Focus on Locus

New policy dials in the MBS Calculator!

September 2012

We would like to highlight the release of new policy dials in the MBS Calculator that allow you to view the impact of future and potential policies on agency prepayments and valuation.

These new dials include:

User Expanded HARP Eligibility Date

User Expanded HARP Start Date

User Expanded MIP Date

User Expanded MIP Start Date

User Lock-in Relief Start Date

Short Sale Effect To access these new dials in the MBS Calculator click “Customize View.”

http://www.credit-suisse.com/locus Or access CS Plus Analytics (powered by Locus) through the Credit Suisse section of Markit Hub

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay purchase price only.

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