While most industry participants have come to the conclusion that the U.S. housing market is unlikely to post rapid price declines on a nation-wide scale, Standard and Poor's last week released an updated simulation of how the RMBS market would perform in such a scenario - otherwise known as the ominous housing bubble burst.

Those deals backed by fixed-rate borrowers who have equity invested in their homes held up well because they did not experience payment shock. Meanwhile, fixed rate Alt-A transactions experienced defaults at the B' and BB' rating level. Excess spread absorbed losses in the initial years of the subprime transaction, but eventually the BBB-' bond defaulted and the BBB' bond was declared speculative grade.

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