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Old Republic International Corporation Message Board

  • exgc exgc Nov 4, 2007 10:05 PM Flag

    From the MBI Board

    Can anyone explain this in English to me? Ran across this on the MBI board.

    I also found out that they are insuring a bunch of Countrywide seconds. The structure of these deals is very different from what I have seen in other second lien deals. There are no mezz or sub tranches, only 1% OC, but 65% of the loans has MI on the seconds (wierd). A company called Old Republic is guaranteeing but only up to %10 loss (per prospectus). So if losses go over 10% the OC gets hit then MBIA. The wierd thing is that delinquencies and losses are extremely low for these type of loans so I am thinking that loans are reported as current since Old Republic is making the past due payments to the the trust. There is no disclosure in the remmitance report regarding payments from Old Rebuplic or how close they are to the 10% cap, so its really hard to tell how close MBIA is to a claim. Figures it would be Countrywide to leave the investors in the dark.

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    • I'll try, based on your info, but not sure it it is going to be better:

      By example. Let's suppose there is 100mn of loans in this CDO of which 65% has some insurance. These are second lien loans so let's assume (to be conservative) they have close to zero recovery in default. If 25% of these loans default, then .45*25 = 11.25 mn would have no insurance. This eats up the measly 1% (i.e., 1mn) in extra collateral (OC) off the bat and leaves security owners out 10.25 mn. On the 16.25 mn balance, Old Republic would pay out 1.625 mn, and MBIA would then be on the hook for some or all of the remaining 14.625 mn

      I don't think the ORI coverage would "mask" underlying true defaults as they are only insuring 6.5% of original balance. Also, I don't know if the ORI is first pay.

      This seems like a very weak structure and, my guess, is that ORI has or will pay out soon and MBIA is already sitting on a claim.

      that is the best I can do w/o prospectus

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