Analysis of the Performance of Subprime Portfolios in Servicing and Breach of Contract Litigation

The Situation

One of the largest subprime loan servicers was involved in more than one litigation over the performance of subprime loan portfolios after a transfer of servicing rights. Parts of the portfolios were securitized.

NERA's Role

A NERA team led by Vice President Dr. Faten Sabry provided analytical support to the client. The analysis included a detailed evaluation of the loss forecasting models, examination of the performance metrics over time, and static pool analysis for the securitized and non-securitized loans.

In addition, NERA provided rebuttal analysis to the damage models presented by the opposing expert, illustrated the bias in the loss models used, and developed an alternative method of evaluating the performance of the loans based on subprime loan indices. The proposed method allowed for identifying the market conditions as well as the idiosyncratic components that affect the performance of the loans under the particular servicing agreement.

The Result

Based on NERA's findings as well as the rebuttal analysis of the performance of the loans, the parties reached a settlement agreement that was consistent with NERA's estimates.