The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: sciAticA errAticA who wrote (57989)	4/12/2006 11:14:39 AM
From: Ramsey Su	Read Replies (32) of 110194

there are so many seemingly simple questions I have regarding credit derivatives that I have a tough time finding answers to. For example, take a loan that has been securitized into 10 tranches. Now the borrower stopped paying, what happens? CDS kicks in? Who pays whom? Are there guarantees from the originator? I assume the servicer proceed with foreclosure and let us assume this property is going down the whole way, now what happens? Are the riskiest tranches going to be wiped out? Are they going to be "repurchased" by the originators? What rights would each tranch have if they are going to be wiped out, is it possible to take over the property kind of like a jr lien holder?

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