Bear Stearns 2007 Outlook Cautions RMBS Performance.

NEW YORK -- There has been a lot of talk about the risk layering seen in the underwriting of loan originations in recent years and how it has changed the dynamic of the market. And at its recent "Mortgage and Structured Products Conference: Outlook 2007," Bear Stearns explained some implications that trend has for residential mortgage-backed securities.

According to Steven Bergantino, a managing director at the company, while the market has been focusing primarily on subprime RMBS risks due to the "markedly bad" performance seen in the 2006 vintage, risk layering has created a need for increased attention to and loan-level analysis of the alternative-A credit sector as well, "blurring" the distinction between the two.

"The layering of risk characteristics can significantly worsen the credit performance of alt-A mortgages," Mr. Bergantino said in his presentation.

Other notable conclusions Bear Stearns researchers came to in examining the different layers of underwriting characteristics as part of the firm's modeling efforts include the following:

* FICO scores are just one of a number of primary drivers of credit performance. Others include documentation, combined loan-to-value ratio and occupancy.

* While documentation and occupancy requirements placed on no-money-down borrowers have "weakened significantly" there has been ...