Friday, March 4, 2011

The Curious Case of Carrington

With Carrington having been in the news of late, we thought we would investigate the performance of one of its bonds.

Today's bond is currently rated A2 by Moody's (MCO), CCC by Standard and Poor's (MHP), and CC by Fitch. (Carrington Mortgage Loan Trust, Series 2004-NC1 ; Class M2 ; CUSIP: 144531AF7)

This residential mortgage backed security (think "toxic asset") survived through to 2009 before first being downgraded by Fitch. Standard and Poor's followed suit in 2010. Moody's retains it at its original A2 rating.

Split ratings like these, in an ideal world, provide a trader with an ideal opportunity to profit if she can correctly express her opinion as to the credit quality of the bond. Of course, there's no simple mechanism for shorting a RMBS security that you think is over-rated -- but buying a bond you believe to be under-rated can provide handsome rewards, if you're right.


Anonymous said...

Anyone who thinks CMS serviced CARR and NCHET results are an accident needs to do the research to understand what is really going on. Until regulators and enforcement people get it together this will continue to be a problem. The data is available to anyone who knows what they are doing.

Please understand that Jeff Horwitz's "Skin in the Game" only told part of the story. The real manipulations are much worse.

Carrington Mortgage Servicing, Carrington capital Management, Carrington Investment Partners, Bruce Rose, Hedge Fund Mortgage Fraud, Skin in the Game

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