I'm actually surprised these securities work at all, they require so much trust. A bank sells some mortgages to a trust it creates for the occasion. The trust creates certificates of various risks that get rated from AAA to BBB- that it sells publicly and from BB+ to unrated that it sells privately to various persons. Class A (not *rated* A) certificates get paid in full before any Class B certificates get paid. There is a Servicer, who processes most of the mortgages' payments to the Trust, and a Special Servicer, who processes problem mortgages, ones that are in default or some other specially defined troubled circumstances. Usually about 2% of loans are in the Special Service category. Service fees are naturally much higher for this category.
Northern Rock's trust, Granite, has a prospectus up on the web.
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