1. Comments on “Vintage and Credit Rating: What Matters in the ABX Data During the Credit Crunch” Shane Sherlund Federal Reserve Board* *The views expressed herein are mine alone and do not necessarily reflect the views of the Board of Governors, its members, or its staff.

2. Discussion Very nice, careful paper! Decompose movements in ABX-HE prices Source: Markit.

3. Discussion Common factors Source: Markit, RadarLogic.

4. Discussion Ratings factors Source: Markit.

5. Discussion Vintage factors Source: Markit.

6. Cumulative Default Curves September 2008 Source: Calculations from First American LoanPerformance.

7. Discussion Liquidity effects Source: Markit, Federal Reserve.

8. Discussion Common factor  Relatively small effect early on; low correlation  Onset of financial turmoil, significant and persistent increase Systematic, non-diversifiable risk High correlation across assets Asset rating and vintage factors  Effects decrease over time  Distinguish between vintages and tranches  Roles in asset volatility small

9. Discussion Liquidity premium  Influence increased at onset of financial turmoil  Along with common factor, accounts for downward pressure on ABX prices Across ratings Across vintages

10. Comments Composition of each vintage  Underwriting  Geography

11. House Price Appreciation 2000-2008 Source: FHFA House Price Index.

12. Percent of Subprime Mortgages with Negative Equity by State 2005-2008 Source: Calculations from First American LoanPerformance, FHFA and S&P/Case-Shiller house price data.

13. Serious Delinquency Rates by State 2005-2008 Source: First American LoanPerformance.

14. Comments Liquidity effect  Investors?  Borrowers?  Both?

15. Subprime Mortgage Rate Resets September 2003 Source: First American LoanPerformance.

16. Subprime Mortgage Rate Resets September 2004 Source: First American LoanPerformance.

17. Subprime Mortgage Rate Resets September 2005 Source: First American LoanPerformance.

18. Subprime Mortgage Rate Resets September 2006 Source: First American LoanPerformance.

19. Subprime Mortgage Rate Resets September 2007 Source: First American LoanPerformance.

20. Subprime Mortgage Rate Resets September 2008 Source: First American LoanPerformance.

21. Cumulative Prepayment Curves September 2008 Source: Calculations from First American LoanPerformance.

22. Comments Measure of fit?  R-squared (pseudo R-squared)  “Variance decomposition”

23. Summary Ratings and vintage factors  Effects decreased over time  Role in asset volatility small Common factor  Significant and persistent effect once financial turmoil started  Systematic risk; high asset correlations Liquidity premium  Influence increases over time