U.S. Central Federal Credit Union's mortgage-backed securities portfolio is overwhelmingly based upon nonagency bonds underwritten by subprime, Alt-A, and negative amortization whole mortgages.
In fact, according to Clayton IP's first quarter valuation report obtained by Credit Union Times, the three asset groups comprise about 75% of U.S. Central's nearly $20 billion MBS portfolio, and are responsible for 90% of base case losses, representing nearly $2 billion.
Clayton projected U.S. Central's subprime-backed securities would provide nearly half of total MBS base case write-downs, worth more than $1 billion. Alt-A backed securities followed with about one-quarter of projected base case losses, worth nearly $530 million, and negative amortization backed securities were projected to account for 20% of base case losses, worth approximately $430 million.
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Prime or agency securities were projected to provide only 1% of base case losses; they represent less than 10% of U.S. Central's MBS portfolio.
Pessimistic scenarios predict big trouble for negative amortization loans, which Clayton projected could be written down to less than 50 cents on the dollar. Other projections resulted in a more than 50% write-down on securities backed by home equity and a 35% write-down on subprime-backed securities.
Prime and agency backed securities were projected to suffer only 5% write-downs in pessimistic modeling.
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