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UBS, which has become the poster-child for how not to manage mortgage-backed assets in the credit crunch, may have dumped a cool $24 billion worth of Alt-A loans in a firesale. Alt-A loans, which are made to borrowers with good credit but little or no income or asset documentation have seen defaults soar as mortgage payments adjust higher and speculative bets on investment property are let go by borrowers.
Market Watch has more on the speculated sale:
UBS may have sold off a portfolio of Alt-A securities worth around 25 billion Swiss francs ($24.1 billion), according to an analyst at J.P. Morgan.
UBS was “highly likely” to have sold the securities in a fire sale, said J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject.“We see the speculated level of 70 cents on the dollar as realistic in a fire sale,” he said in a Thursday note to clients, adding the current market price is probably 84 cents on the dollar.His note came amid published reports that UBS sold its entire portfolio to Pimco, the bond-house giant owned by German insurer Allianz .A separate note from Huw Van Steenis of Morgan Stanley estimated that UBS may record mark-to-market losses of nearly 5 billion francs this quarter, if the reports are true.Neither firm has commented on the reports.Alt-A mortgages are home loans sold to borrowers with better credit than those who take out subprime mortgages, and they often require less information.Delinquencies and foreclosures on Alt-A mortgages haven’t climbed as high as subprime loans, but they have deteriorated faster than many expected. Read related story.Securities backed by Alt-A loans also built in less protection for investors than similar structures holding subprime mortgages. That’s made the deterioration in Alt-A securities almost as painful as the subprime meltdown.
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