Loan purchaser C-BASS last week priced its latest nonperforming loan transaction, a $327 million deal that brought its total "defaulted mortgage" securitization volume past the $1 billion mark.

So far, C-BASS has done eight defaulted-loan deals, each progressively larger. The first five were privately placed. The first public deal last year totaled $117 million. Then, early this year a second public transaction hit the tape at $196 million.

And according to James Schneider, a C-BASS director, there's a good possibility that another similar deal will price this quarter. "We continue to purchase our target investments, including subperforming and nonperforming government loans," he said.

Through its Houston-based affiliate, Litton Loan Servicing LP, C-BASS contacts mortgage servicers and buys loans that are nonperforming or subperforming. Then it "cures" these loans, Schneider said, which means returning the loan to a basis where the borrower is makes three consecutive monthly payments. (Litton also serves as the servicer for the securities backed by the cured defaulted loans.)

According to Schneider, Litton's cure rate runs twice the industry standard.

The total for last week's asset-backed deal, Series 1992-CB2, was $327 million. The biggest tranche, the $117 million 1-A class, was backed primarily by fixed-rate government loans that still carry either Federal Housing Administration or Veterans Administration guarantees, said James Schneider, a C-BASS director, adding that this class priced at par.

Last week's security carried two other triple-A-rated tranches as well These were backed by two "groups" of loans, Schneider said. One group consisted of conventional fixed-rate loans; another was made up of conventional adjustable-rate mortgage loans as well as FHA and VA ARMs. Class 2A1 priced at Libor plus 50 basis points and class 2A2 priced at Libor plus 35 basis points.

Some subprime and nonconforming loans were also included in the deal, which contained a total of 10 classes with ratings ranging from as high as triple-A to as low as triple-B. Merrill Lynch & Co. was the lead manager and First Union Capital Markets Corp. was co-manager.

New York-based C-BASS keeps the unrated subordinate bonds and its affiliate services the loans backing the transaction. The deal was done as a traditional senior-subordinate transaction without a monoline wrap.

C-BASS stands for Credit-Based Asset Servicing and Securitization. It is jointly owned by MGIC Investment Corp., the parent of mortgage insurer MGIC, and Enhance Financial Services Group Inc., which reinsures monoline guarantors.

Schneider said servicers find it cheaper to sell seriously delinquent government loans to Litton than to keep them and try to cure the loan themselves.

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