At press time last week, AmeriQuest Mortgage was pricing its third net-interest margin (NIM) securitization of the month, this one dubbed a "Re-NIM" by lead manager Banc of America Securities.
The novel $50 million deal sources the residual interest on three seasoned subprime home-equity transactions, each roughly two years old, and each previously associated with outstanding NIM securitizations. One of the outstanding NIMs has already paid out and the other two will be paid out by the proceeds from the current transaction.
While this type of second-series NIM is rare, the growing popularity of the structure will likely spawn more Re-NIMs, sources said. Investors like the deals because the short average lives and quick payouts tend to mitigate interest rate risk, and the current dip in rates affords these deals healthy excess spread.
The first net interest margin was securitizatized by Green Tree in 1994, though NIMs of the mid-1990s were generally larger in size and longer in tenure. The competition-driven subprime home-equity refinancings in the late 1990s slowed NIM issuance, as they are extremely prepayment sensitive.
Since then, industry consolidation and prepayment penalties have made the structure more practical, an analyst said. In fact, AmeriQuest's deal not only absorbs the residual, but absorbs prepayment penalties incurred until the deal is paid down.
This offering, AQNFT 2001-A, with a 0.36-year average life, and rated Baa3/BBB/BBB, is currently marketed with a hefty yield of 8.5%. By contrast AmeriQuest priced a more "conventional" NIM Wednesday, with a similar rating and longer 1.0-year average life, to yield 9.00%.
Sources close to the deal say that the issuer is trying to squeeze every last penny of liquidity from its balance sheet and it is unlikely that the mega-issuers such as GMAC-RFC or Countrywide will follow suit.