In March, less than a year after the issue was sold, GSAMP began defaulting on its obligations. By the end of September, 18% of the loans had defaulted, according to Deutsche Bank.
As a result, the X tranche, both B tranches, and the four bottom M tranches have been wiped out, and M-3 is being chewed up like a frame house with termites. At this point, there's no way to know whether any of the A tranches will ultimately be impaired.
When you start getting up into the A tranches you have quite a few mortgage insurers who will be in alot of pain. i.e. MBI
What is there to take away from our course in Junk Mortgages 101? Two things. First, you have to pay at least some attention to all those "risk factors" that issuers forever warn you about - especially when you're dealing with a whole new thing like junk mortgages issued en masse instead of by specialists.
Second, when you rely on the underwriter and the rating agencies to do all your homework for you, you don't have safety. You have only the illusion of safety.
This goes for equity investments obviously as well. It is one reason I don't like reading sell side research. Besides all of the psychology issues of anchoring on projections it tends to make you lazy even subconsciously.
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