With recent prices for typical senior private label residential mortgage backed securities (subprime, Alt-A, and prime jumbo) now 25%-40% higher than two months ago, it would be a stretch to call them an opportunity of a lifetime. They are not even the opportunity of the past two months. Nevertheless, even with the increases, the prices of many of these securities remain at levels that should generate annualized returns in the 20%-25%+ range so long as we do not see another much more severe leg to the recent recession. Class A-2D of GSAMP 2006-HE5 (one of the securities referenced in Markit's ABX 07-1 AAA index), for which Reuters has provided recent price quotes in the ballpark of 20 cents on the dollar, provides an example.

There are differences between GSAMP 2006-HE5 and other subprime pools, but the risk-reward trade-offs on these securities are more similar than different. Therefore, examining a single security from this pool provides useful insights into the return potential for other subprime securities, and to a lesser extent, Alt-A and prime jumbo securities.