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Second Liens: How Important?

Laurie S. Goodman, Roger Ashworth, Brian Landy and Ke Yin
The Journal of Fixed Income Fall 2010, 20 (2) 19-30; DOI: https://doi.org/10.3905/jfi.2010.20.2.019
Laurie S. Goodman
is a senior managing director at Amherst Securities Group LP in New York, NY.
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  • For correspondence: lgoodman@asglp.com
Roger Ashworth
is an MBS analyst at Amherst Securities Group LP in New York, NY.
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  • For correspondence: rashworth@asglp.com
Brian Landy
is a senior vice president at Amherst Securities Group LP in New York, NY.
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  • For correspondence: blandy@asglp.com
Ke Yin
is co-director of mortgage research at Pine River Capital in Beijing, China.
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  • For correspondence: ke.yin@pinerivercapital.com
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Abstract

In this article, the authors look at the second-lien issue, demonstrating that just over 50% of first liens in private label securitizations have a second (or higher lien) behind them. This includes simultaneous seconds, subsequent seconds, and both. The presence of a second lien raises the CLTV (combined loan-to-value ratio) by over 20 points and has a significant adverse impact on first-lien performance. The authors also show that the performance of simultaneous seconds is worse than subsequent seconds. The policy implication is that second liens are too important to ignore when considering loan modifications. And if modifications involving principal reductions begin to gain traction, the second-lien issue moves front and center.

TOPICS: Real estate, MBS and residential mortgage loans, credit risk management

  • Copyright © 2010 Amherst Securities Group LP. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Fixed Income: 20 (2)
The Journal of Fixed Income
Vol. 20, Issue 2
Fall 2010
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Second Liens: How Important?
Laurie S. Goodman, Roger Ashworth, Brian Landy, Ke Yin
The Journal of Fixed Income Sep 2010, 20 (2) 19-30; DOI: 10.3905/jfi.2010.20.2.019

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Second Liens: How Important?
Laurie S. Goodman, Roger Ashworth, Brian Landy, Ke Yin
The Journal of Fixed Income Sep 2010, 20 (2) 19-30; DOI: 10.3905/jfi.2010.20.2.019
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  • Article
    • Abstract
    • METHODOLOGY
    • PREVALENCE OF 2NDS (THE RESULTS, PLEASE)
    • PERFORMANCE OF LOANS WITH SECOND LIENS
    • IMPACT OF 2NDS ON MARK-TO-MARKET CLTV
    • 2NDS—AGGREGATE STATISTICS
    • 2NDS—THE PUZZLE
    • CONCLUSION
    • ENDNOTE
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