Tuesday, May 11, 2010

U.S. – Land of Equality? Not when it comes to foreclosure timelines

Written by Jack Broad

It’s been a while since my last article. I’ve been fully tied up with client requests and projects. In any case, let’s get down to business.

In this article, I want to convey some thoughts about foreclosure timelines. What they are and how they can impact various market participants. Recently I performed an analysis of state-level foreclosure timelines. Here’s some of what I found.

The biggest fact that jumps off the page about timelines, especially foreclosure timelines, is the HUGE disparity that exists from state to state. For example, we restricted our study to those loans that have fully completed the foreclosure process within the last year and found that the average number of months before the borrower’s right to title in their home is extinguished is:

Fastest Foreclosure States (listed alphabetically)

State #Mths

Alabama 2.34

Arkansas 3.08

DC 2.70

Georgia 2.58

Maryland 2.79

Michigan 3.22

Missouri 2.06

New Hampshire 2.88

Tennessee 2.15

Texas 2.85

Virginia 1.89

Maybe that’s not such big news but compare it against the following list of the slowest foreclosure states

Slowest Foreclosure States

State #Mths

Delaware 6.92

Florida 6.13

Iowa 8.54

Illinois 7.28

Indiana 7.23

Kentucky 7.34

Louisiana 6.19

Maine 8.83

New Jersey 7.51

New York 7.05

Ohio 8.03

Pennsylvania 7.10

Vermont 8.39

Holy Smoke!! What a difference! Why is this important to know about?

Does anyone see an almost distinct regional influence in the above? For example, most of the New England states are in the slowest group. While Southern states (except Florida) tend to be more in the fastest group. Why on earth would states like Georgia, Alabama, Texas and Virgina be, what appears to be, almost fanatically fast when it comes to getting people out of their homes when states like NJ, NY, PA, FL do it in a, comparatively, leisurely frame of mind. For anyone in foreclosure, it usually is a pretty stressful situation. You know, maybe you feel a bit degraded and wonder how could things have gotten so bad – all that kind of thinking. Whether it’s a fast process or a slow one – you’re generally caught up in a situation that feels like “something has gotten out of control” in ones own life. But let’s continue to look at this a bit more dispassionately for a moment.

As far as foreclosure timelines go, SLOWER is definitely better for the borrower. It’s obviously worse for the lender because they don’t get to recoup any of their money for a much longer period of time. For the sake of this example, let’s say that a person who becomes delinquent on their mortgage is NOT PAYING at all – in other words, the person isn’t even paying a little bit of money – just nothing being paid to the lender at all. This is the usual state of affairs when a person becomes delinquent. Additionally, it should be known that the person is not able to be evicted or thrown out of their house, at least until the foreclosure process has been completed (and, strangely, in some states not even then). So how much money does a person “save” by not paying their mortgage. For purposes of some simple math, let’s make a ballpark estimate of a $200,000 loan size and an average mortgage rate of 8%. Keep in mind that some states like California have a much higher average loan size.

Let’s say that Pete lives in Missouri and he goes 30 days delinquent (1 missed payment), then 60 days delinquent (2 missed payments) and then the lender gets the foreclosure process started on Pete. According to the above Pete can stay in his house for another two months. This adds up to a total of 4 missed payments. So let’s see:

$200,000 * 8% = Annual mortgage payment of approximately $16,000. That’s approx a monthly payment of 1,333.33 (these figures are not exact but close enough to get this point across)

So 1,333.33 * the 4 months Pete got to skip out on his mortgage payment and he ends up “saving” $5,333.32 in interest.

But if Pete lives in New York, he saves $12,000.00 – an additional $6,666.67! So basically he’s living RENT FREE for at least 9 months (at least 2 in Pre-Foreclosure and another 7 during the actual foreclosure process itself).

In Maine (almost 9 months in foreclosure), Vermont (8.4) and Ohio (8) he saves even more money by not paying.

Now let me make it very clear that I’m not advocating to people that they not live up to their financial obligations. Definitely not, but the point I’m making here is: “How come there’s so much disparity from state to state?” I know the typical answer is that foreclosure laws and timelines are statutory, meaning they are created by state legislatures. How is that possibly right? Is it fair that a guy up in Michigan, who may have been laid off due to the meltdown of the auto industry there – he gets only 3 months of foreclosure process before he’s given the boot, whereas a guy who works on Wall Street and who’s living in NJ and who just got the can because of the mortgage market meltdown – he gets to not pay his mortgage for 7.5 months. If the guy in NJ has a much higher loan amount he will save even more money because of this.

Or how about in Texas where the PRE-foreclosure timeline is only 2 months. 2 missed payments and they rush you, (guns ablazing I guess) into foreclosure. Other places, it’s 90 days at a minimum. But not the lone star state of Texas. 2 missed payments and you’re in foreclosure. Consider yourself “corralled” by the foreclosure “lasso”. Then two months later, you’re out on the street. In fact, in Texas they have a lovely name for the date each month when they do their foreclosures – it’s called “Texas Tuesday”. Isn’t that cute? Tell that to the guy who’s getting shoved out of his house, while the guy up in Delaware has about another 5 more months before he gets the official boot. That additional 5 months gives a person a lot more time to try to figure out an alternative solution. Call his friends, relatives, look for a 2nd or 3rd job. Whatever! He at least has more time during which to solve his problem. He also “saves” much more money by simply not paying his mortgage. These “fast foreclosure states” barely give someone any time to think – let alone solve their financial problems and they’re OUT of the house.

Once a person is in foreclosure, their credit is basically shot to hell anyway, so why try to pay at all? Add to this the fact that the housing market has depreciated so fast recently – which has caused many borrowers to have zero or negative equity (the house is worth less than the mortgage they’re paying) that it’s now become a “bad financial transaction” for the borrower. Again, I’m now looking at this in a “dispassionate” dollars and cents way. What do you think a trader on Wall Street would do with a “bad trade” he’s gotten into? Hopefully, he’d get the hell out and FAST so as to stop losing money. And to hell with whether the borrower’s credit is bad. Credit (FICO for example) can be rebuilt in time. In the meantime, stop paying the damn mortgage and push that money towards something else. Set aside that money for rent for after you officially don’t own the house any more. Save it to be able to pay for gas for the winter. How about maybe using that “saved” money for the very basic necessity of survival – FOOD for the kiddies. Compare food and shelter to whether your credit score is good and I’m pretty sure I’d know which way people are gonna bounce on that decision if they have to exercise their “option” not to pay anything at all towards their mortgage. The guy can’t be put in jail for not paying his mortgage in this day and age – so he’s not worried about ending up behind bars because of not paying. The threat of “debtor prison” is long gone in this country.

As an aside, my father, who retired to Vermont just told me that he’s had to pay 8,000 towards heating oil for his house for the coming winter because of the rising prices of gas – he’s trying to head off the rising price by paying now at a specific price because if he waits until the winter, lord knows how high the price is going to be – so he’s trying to save money by buying now.

I must emphasize that I am NOT advising anyone to actually do the above. I’m just giving what I think are some of the thought processes that may go through a borrower’s mind. Lenders have got to be mighty worried about the current state of rising delinquencies in the overall mortgage market place.

Timelines increasing

Three other factors can work to INCREASE the timelines beyond what I’ve described above.

First of all, my understanding is that if a person is in foreclosure and declares bankruptcy it puts, at least for a few months, a “stay” (stops the process) on the foreclosure process. Obviously this is going to increase the amount of time the person is living “rent-free” (so to speak). I’ve heard stories of people declaring bankruptcy, stopping the foreclosure process. Coming out of bankruptcy, then the foreclosure process starts again. Then the person declares bankruptcy again which stops the foreclosure process again. And so it goes. You can think “isn’t that a scam?”. Maybe, but maybe not. The individual is permitted certain activities in our society and that is one way to do it. In the meantime you get to stay in your house without paying a dime. As Don King used to say: “Only in America.” Actually, it probably exists in other countries but I digress…

Secondly, in some states, even after the foreclosure process has been completed, you are not allowed to even evict the person before a certain amount of time has elapsed. What!! You’re kidding right? It’s true. Let’s say you’re an investor and you’re hungry for foreclosure sales because you think you’re going to get a great deal by paying a really low price for some house that’s in foreclosure. So you go to the foreclosure sale at the right time and bid on the house and voila!! You’re the lucky winner. Your bid was higher than anyone else’s. Your bid was even LESS than the full amount that was owed to the original lender AND the lender accepted your bid. Great deal right? Um… Hang on a second… The house you bought is in the lovely state of Vermont. Guess what? The person still gets to live in the house RENT-FREE and LEGALLY for another 6 months!! THEN you can start eviction proceedings (which might take a bit of time if the guy decides to hole up in his house with supplies, ammo and a few wonderful guns). You’re kidding right? This is a joke right? Nope, no joke. You cannot even start eviction proceedings until the full 6 months have gone by. Also, the person is still living in that house. During that time you can drive by the house and look at it wistfully if you want – people might look at you a bit strangely. Not only that but if the borrower were to actually come up with all the monies he owed – he could pay off the bank and reclaim the house. Oh my god. What a nightmare. You’re livid. You’re now gnashing your teeth and busting up the furniture in your house instead of drinking Crystal. Yup – you made a bad trade (as they say on Wall Street). This period of time after the foreclosure sale where the original borrower can still stay in the house is known as the “redemption rights” period. Not all states have it but you’d best make sure before you get suckered into buying some “great” piece of real estate only to find out you don’t actually own it yet.

One other strange fact is that, of the slowest states given earlier, only Michigan has a “redemption rights” period (6 months). This makes the rest of the slower states even more egregious in their “rush to get people out of their houses.”

Thirdly, case loads. As the U.S. descends into uncharted real-estate economic territory, foreclosures are rising fast. What’s that going to do with the legal and court systems responsible for pushing all these foreclosures through. Think of that poor Texas sheriff who now has to sell 100’s of properties on his “Texas Tuesday”. He’ll probably have to come up with a “Texas Wednesday” and “Thursday” and “Friday”. Hell maybe even a “Texas Fortnight”. Somehow that doesn’t evoke much sympathy from me. Poor sheriff – 2 months delinquent. Into foreclosure for another 2 months and onto the streets with your rear end. He’s so stressed by all the additional foreclosures he’s having to deal with. Awww. Poor guy. But seriously, don’t you see the “log jam” on the horizon? Actually, it’s closer than the horizon. Lordy, it’s RIGHT HERE on our doorstep. That does agree with the results I’m seeing in the data. In other words the timelines ARE increasing – but not quite as much as I would have thought … yet.

At this point, my ability to be dispassionate has just about gone into orbit and I’m left in a state of complete “flabbergast” (if there isn’t such a word, I’m officially declaring there is one now).

If my parents or my brother and his family ever have trouble in Vermont, it appears they’ve got not only 8.4 months of average foreclosure timeline, but then have another 6 months redemption rights period. If they spent 4 months being “merely delinquent” before the foreclosure process kicked in, then that’s 18.4 months of rent-free living. Let’s throw a bankruptcy somewhere in there and maybe the Vermont legislature wanting to help people out by extending the Vermont statutory foreclosure timelines. Man-o-man. Who would have thought that possible? We’re looking at maybe 2 years of rent-free living man. Of course, I think ammo and survival supplies are probably unnecessary even though Vermont was a famous gun state historically speaking. I’m also pretty happy about the fact I live in Florida.

At this point, I no doubt need a disclaimer for cya purposes (or is it cma purposes?): Obviously, you should always consult an attorney and your financial advisor.

What I definitely would advise people to do though is NOT to get suckered into companies who, knowing the above, will try to get you to do what I’ve described above and then charge you some percentage of what you’ve “saved” by simply not paying your mortgage. To me, that’s simply taking advantage of people’s fear and non-comprehension and is a pretty unethical practice at best. When you have the ability to pay, you really should live up to your financial obligations. After all, you signed on the dotted line. If you can pay, do so.

Okay, so at this point we’re probably in agreement that it’s a pretty unfair situation for such disparity to exist between the states. What should be done about it? Some states are attempting to increase their foreclosure timelines such as Massachusetts and Colorado. Try searching on Google for “foreclosure timelines” and you’ll be able to confirm most of what I’m talking about here.

I understand the idea of permitting each state to handle its own destiny but it almost forces people to know about these issues before even moving into a particular state. Maybe the federal government should step in and say: “Too much complexity. Too un-standardized from one state to the next. Too much disparity and unfairness. Here’s how it’s going to be.” In this case, I personally think it would be a good thing to standardize the processes and procedures surrounding timelines. I have a 1500 page tome of a book from the US Foreclosure Network which gives state by state descriptions and details (by lawyers unfortunately) that is simply amazingly complex. Trying to sort through that morass of information is one of the more difficult and somewhat unpleasant things I’ve studied in recent memory. To my mind, there’s simply no reason for it to be that complex.

What’s amazing to me is I have seen almost nothing about the disparity I talk about above in the financial press. How could some of these simple observations be missed – if someone knows of some sources where this is talked about please let me know.

It should be noted that we also studied the PRE-foreclosure timelines on a state level and as you’d expect, in general, it averages between 2-4 months (30 – 120 days) before someone is herded on into foreclosure. But some states (such as Texas mentioned earlier in this blog) average on the low side of even the pre-foreclosure figure. I mean what’s the big rush Texas? (I’m not really expecting Texas to actually answer this question, but thought I’d give it a try anyway.)

To my mind this article gives information about one of those things where “truth is stranger than fiction”. Anyone else have experience with this? If so, I would really welcome your thoughts.

Sounds like it’s a good time to invest with companies that specialize in rental properties.

Coming Next: “REO” (real estate owned) timelines


Thetica Systems is a sister company to Thetica LLC, a consulting firm which over the last two decades, has developed a reputation for consistently providing top quality IT solutions to the financial industry in record time. Our deep understanding of the industry and what clients really need and want are the basic building blocks of Thetica Systems’ success. For more information visit us atwww.TheticaSystems.com

Thursday, April 29, 2010

Condos and "The Borg"

Written by Jack Broad

What possible connection could the infamous “Borg” have with the condo market here in the U.S.? Well read on and you’ll see how my crazy mind works some times.

In the weekend edition of the WSJ there is an article on the coming glut of condos on the market. The article is not talking so much about the already completed glut of condos, but the fact that many developers back at the height of the housing boom committed some of their own funds initially, started development of condos, rushed around and got loan commitments that would enable them to go ahead and complete the project and really got themselves STARTED on their projects to a point where they can’t really back away from completing the projects now. They’re COMMITTED in other words.

The article is attempting to explain why there was such a furious building up of condos in the U.S. during the years 2004 through 2006. It says: “Speculation was rampant as investors believed empty nesters and young professionals seeking an urban experience akin to what they watched on ‘Friends’ would prop up the condo market for years.”

Huh!! Are you kidding me? You mean to say that a bunch of people dutifully glued to their TV sets watched a sufficIent number of episodes of “Friends” that they were thereafter infected with the idea of “Friends”and their condo-living existence complete with congregating in their ‘hive-like’ structures in urban environments because it maybe reminds those yuppies of their dorm-like existence with their collegiate buddies and that somehow this idiocy became so embedded in their minds that it was as if ROOTED in the very cores of their collective psyches, so much so that it was the CAUSE of a furious condo build out. Ha ha ha!! That is an utter fallacy. Who are they kidding? Does the WSJ really believe that investors are so utterly stupid as to believe the above nonsense. What an insult to investors, yuppies and empty nesters alike.

What are we some sort of damn termite with a deeply embedded genetic goal to “build-build-build-until-we-reach-the-very-stars”. I must admit that some of the images of termite nests I found on a Google search do look quite a bit like some of those structures lining the shores of Miami and other cities around the U.S. if only because of how many of them are dark at night because no one is actually living in them.

Are we sort of like an ant colony pre-programmed by nature out of many millions of years to do things that way because “this is what ants do so we must do it.” Sort of like doing the “CC” (colonially correct”) thing.

This idea of “Friends” causing the excess building of condos in America is just another financial “insanity of the day” or another “lunacy of the month” being foisted off on the financially interested public.

I can just see them now… Millions of yuppies and investors, dark-eyed and unthinking sitting there thinking about their American Dream. Repeat after me in a robotic monotone voice: “I have watched ‘Friends’. I want to live like the lovely people on that show and laugh and say silly things. This must be one of my life-long sought after goals. It is now engraved on my inner being. I will forever more strive to achieve that end.” Give me a break.

If you repeated the above in that monotone are you starting to hear how it’s a bit like the unthinking Borg of Star Trek fame: “Resistance is futile. You will be assimilated.”

This even harkens back to my childhood when getting the bejesus scare out of me by watching a British show called, “Dr. Who”. There were these killer robots called the “Daleks” shaped like big salt shakers with rounded bumps all over them frightening little kids all over the United Kingdome with their: “You will be exterminated.” line of utter terror.

Okay, reel me back in please. I’ve drifted off into a no man’s land of utter silliness.

So you now see the connection between the condo craze and the Borg right? Sorry, we ain’t robots. We’re not the Borg. We’re not ants. We’re not termites. We are not even “herds of animals”. We’re living, breathing, thinking, beings – who can make judgements and decide and are aware of our environments and of ourselves. We are not machines.

What does this have to do with finance. Not too much, I guess.

Thetica Systems’ ABS Trader Tools is a high performance suite of tools that boosts productivity for ABS, CMBS, CDO and CDS traders and analysts.

Thetica Systems is a sister company to Thetica LLC, a consulting firm which over the last two decades, has developed a reputation for consistently providing top quality IT solutions to the financial industry in record time. Our deep understanding of the industry and what clients really need and want are the basic building blocks of Thetica Systems’ success. For more information visit us atwww.TheticaSystems.com

Tuesday, April 20, 2010

ABS Market Makers and the great Transparency Myth

As mentioned in the previous article, rating agencies have taken a huge hit to their reputations because they have been very slow to react to the market and have been outright wrong about their “opinions” as to ratings. So if there is so much dependency that financial institutions have soldered into the rating agencies disclaimed opinions (see how little they trust even themselves), what else can be done to come up with better and more timely quotes for market participants. There’s been a lot of press relating to howUN-transparent the market in ABS and mortgage backed securities has been and how this has contributed to the problem.Today’s rant is not so much of a rant as a series of things that can be done to provide varying degrees of market transparency and thereby add liquidity to the business of offering prices for ABS securities:

  1. Use the CDS on ABS market as a proxy for quotes on cash. Sure, there will be some “basis” (difference between the quotes on ABS CDS and the underlying quotes on Cash instruments), but as in the Corporate Bond market, CDS quotes go a very long way to giving one and all a pretty good feel for what the market perceives is the riskiness of these securities. The CDS market is so far ahead of the Rating Agencies as an indicator as to make the rating agencies almost “redundant” (I’m using the British meaning of the word here). In fact they’re so bad, I’d be hesitant to even include them at all, except as perhaps the very “tip of the iceberg” with a big warning sign all over it: “use at risk to your own investment health.”
  2. Additionally, use the ABX Index market as a secondary proxy. If there are no quotes available for the “single name CDS on ABS” from 1 above, then it’s quite possible to find the ABX tranche that the specific bond is “most like” and use that as an approximation of the price. See www.markit.com for more information on ABX pricing
  3. Use actual trade prices. For all corporate bond trades in the US, it is required that no more than 15 minutes after a trade, that it be entered into the NASD TRACE (trade reporting and compliance engine) system. The counterparties to the trades are anonymous, but you can see the date & time of the trade, the price, the yield and most sizes of transactions. Make it a requirement that ALL ABS trades (and even ABX trades be entered into TRACE) and published broadly. Just this step alone would increase transparency greatly.
  4. Make it a requirement for all dealers to submit daily indicative pricing for ALL Cusips that they have traded within the last 6-12 months. These need not be “firm” prices, but should obviously be as real as possible and as close to where a firm would trade if required. If all dealers were required to submit pricing daily, then the “bad prices” would be able to be weeded out. Each dealer can be “scored” in some way so as to ascertain the general quality of its routine pricing and these scoring tables could also be kept up to date. Again, www.markit.com would be an obvious candidate for managing something like this as they’re already the “arbiter” for ABX products as well as, to a lesser extent, single name CDS on ABS.
  5. To continue further along the “transparency curve”, a given dealer, in the absence of known marks from the the 1st three sources above, should be able to search through it’s database of “bid lists” and “color” data. Doing this for a single bond or retrieving the data for comparable bonds can go far towards assisting with working out what the price should be. This, of course, assumes that each trading desk has had the foresight to actually create and maintain a database of quotes & color historically. I’ve seen some where the primary source of bid list and related histories are gigantic Excel spreadsheets. These do function, but are very difficult to share amongst the participants of an individual trading desk. Better yet is to provide simple programs for dealing desks to save their quotes away to a real database for use by whoever is permissioned to see those quotes. If you don’t have a database already, you’re basically still in grade school at this point.
  6. Use Bloomberg. Bloomberg has got several very useful functions to assist in calculating price based on spread and vice versa. If a firm doesn’t want to commit to a single price/yield, then give a range of prices and yields so as to give at least an idea of price. To make this more detailed, the more information that is given will result in higher quality prices for example, if the CPR rate was disclosed along with the quote. Attribution should be given to indicate that the pricing comes from Bloomberg.
  7. Use Intex. Intex has an “applications programmer’s interface” which can be utilized to produce a wide range of complex scenarios. Some of the ways these can be analyzed are as follows:
  • CPR’s
  • CDR’s
  • Loss Severities
  • Collateral can be “bucketed-up” into various groupings such as “Fixed”, “ARM” and further into “2/28”, “3/27” and further still with “2/28 with a 2 yr prepmt penalty” etc. Each of these collateral groupings can have separate CPR, CDR and Loss Severity curves applied to them.
  • Interest Rate stresses

Creating standard ways of stressing the above and providing matrixes of results for “Px/Yield” tables could go far towards assisting with determining the variability of any given bond to a wide variety of scenarios. The Intex API is quite complex but with some effort and education, the above can be made into a valid means of providing quotes to clients and to the public.Bottom line is that the above presents a fairly wide range of options for giving quotes in the market place. To the degree all of them are used determines the quality of any single dealer. The dealers should be scored according to their ability to not only do the above, but publish the above with the necessary information for other market p
articipants to see how the results were arrived at.So what’s all this about lack of transparency? With the above raft of solutions things should get quite a bit clearer. Let’s hope it’s not too late.


To find out more information about Thetica Systems and our products and services visit us on the web. http://www.theticasystems.com/

The Basics on Agency Vs Non-Agency Mortgages

Mortgages are typically broken out into two primary categories. Agency and Non-Agency.

An “Agency Mortgage” is one which is guaranteed or insured as to its interest and principal payments by a US agency. The largest of the agencies that issue these guarantees are: Ginnie Mae (Government National Mortgage Association); Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal National Mortgage Association). Because these mortgages carry a U.S. agency guarantee, lenders are very comfortable making the loan to any particular borrower because the lender does not have to worry about whether he will be paid. The Government guarantees that he will be paid. This increases the lender’s willingness to lend funds due to the fact that there’s no credit risk to the lender and makes mortgage money more available to consumers. Basically, Agency mortgages are considered “risk free”.

“Non-Agency Mortgages” do not have a government agency guarantee and are therefore more risky. If a borrower becomes delinquent, then the risks of non payments are experienced by the lending institutions. This is what is known as “credit risk” – there is some element of risk connected to the belief in a person’s ability to pay principal or interest.


To find out more information about Thetica Systems and our products and services visit us on the web. http://www.theticasystems.com/

Friday, April 9, 2010

Mortgage Grading (Quality)

Mortgage Grading (Quality)

Written by Jack Broad

Residential Mortgage Backed Securities (whether Agency or Non-Agency) are also called RMBS or simply MBS. MBS are a type of “security” called a “bond” whose coupon and principal payments are paid for by the cash flows of a pool of individual mortgages. The individual mortgages “back” (or “support”) the payments on the bonds therefore they are called “Mortgage Backed Securities”.

Mortgages and the MBS related to them are graded as to quality in a variety of ways. For example, “Prime”, “AltA” (short for “Alternative A”) and “Sub-Prime” (this last category has been in the press a lot recently).

The person’s “FICO score” is one primary method of trying to work out how much of a credit risk any given individual is. The world “FICO” comes from the names of two men (an engineer, Bill Fair and a mathematician, Earl Isaac) who teamed up and created a “Corporation”. These guys developed a system for coming up with a “credit score” for borrowers, which incorporates a wide variety of financial information about an individual’s income and expenses resulting in the individual’s “FICO” score. This score is widely used in the industry to assist in determining any individual’s “credit-worthiness” and this assists the lender in knowing what interest rate to charge the borrower. In general, the lower your FICO score, the higher the interest rate the lender will charge you to offset the perceived credit risk of lending to you. After all, the lower the FICO score, the greater is the risk that you may not be able to pay back the lender.

FICO scores range from 300 to 850. A score of 660 and above categorizes a person as prime quality. The “Prime Rate” is defined as the interest rate banks charge their best customers.

From 620 – 659 is “Sub-Prime” – if you are a sub-prime borrower you will have to pay higher than the prime rate by some negotiated amount.

The word “credit” means “belief in a person’s ability to repay principal and interest.” Determining a person’s “credit-worthiness” is a key goal when deciding whether or not to give them a loan – whether it’s for a car, a mortgage, whatever – any kind of loan.

Another way of roughly grading mortgages is basically “A” (Prime); AltA (a variation of or alternative to “A”) and “B/C” (Sub-prime). Down at the very bottom of the barrel is the lowest grade “D” – this can also be called “Scratch and Dent” (S&D).

Recently we’ve been doing extensive work for a major Wall Street client in their Scratch and Dent area. Basically, these loans are normally in a “distressed state” – meaning the borrowers are, to a greater or lesser degree, delinquent on their payments. For example, if the client can purchase those delinquent loans from another for really cheap and then turn the borrower around so that they are no longer delinquent, the client can themselves then sell those loans at a much higher price than they originally bought them. THETICA has used it’s software components to create versatile software that assists the client to capture information relating to Scratch and Dent loans, price them and then analyse the performance of pools of these loans across time.

**Thetica Systems’ ABS Trader Tools is a high performance suite of tools that boosts productivity for ABS, CMBS, CDO and CDS traders and analysts.

Thetica Systems is a sister company to Thetica LLC, a consulting firm which over the last two decades, has developed a reputation for consistently providing top quality IT solutions to the financial industry in record time. Our deep understanding of the industry and what clients really need and want are the basic building blocks of Thetica Systems’ success.

To find out more information about Thetica Systems and our products and services visit us on the web. http://www.theticasystems.com/