I asked some questions to Greg Diamond, head of investor relations, why not share this with you. It will help in the discussion on recoveries:
Question We understood 27,000 loans have been reviewed. Of which pool/ universe is this?
Second-lien RMBS (HELOCs and Closed-End Seconds). Most of MBIA's 2nd-lien RMBS exposure was issued by Countrywide, Residential Funding Corp and Indy Mac; the loans we’ve reviewed correspond.
Question - What was the principal balance outstanding of this pool?
Using the average loan balance for the 18,000 loans that were decisioned for put-back of $60K ($1.1b / 18K), that would mean 27,000 loans would have total principal of ~$1.65b.
Question - We understand booked recoveries on this pool are ca. 1.2bn?
Yes, $1.1b last qtr and $76m in 3Q09.
Question - How many loans are in this pool you could have reviewed to date? Why didn't you reveiw all of them?
Loan files are no longer being provided by those servicers where we have initiated legal actions (Countrywide, ResCap and Indy Mac). We are seeking access to additional loan files via court actions. ResCap has been ordered to provide us with 61,000 additional loan files, but the judge’s decision is being appealed.
Question - Are these all defaulted loans, or a subset of all defaulted loans?
The loans received/reviewed are seriously delinquent and/or defaulted.
Question - Were these loans randomly selected from this total pool? I.e. can we expect the same outcome for the loans not yet reveiwed? What is your view?
They were loans that were seriously delinquent and/or defaulted prior to when MBIA initiated legal action against the servicers (Fall of 2008).
Question Does your number of booked recoveries on put backs include any extrapolations on future defaults/ or not-reviewed loans?
My take from this Two third of loans had breached of reps & warranties of basically a random sample of defaulted loans. The vast majority of loans, about 450,000 loans, have not yet been reviewed. Serious recoveries can be expected from these loans as well.
What I don't know is what the impact will be on the recoveries on the CDO's guaranteed by MBIA. One can expect the same braches there. Anybody any idea???
only these deals have representation and warrants clause in contracts. this is why MBIA says they have the contractual rights and so they can book recoveries when they have the loan files which are covered by the terms from contracts. for CDOs, they have to sue based on fraud/intentional misrepresentations. basically to overturn the insurance contract. they can not book any recovery until they actually win. MBIA vs Merril Lynch is a law suite on CDOs.