After completing its 10th residential securitization last week, New York-based C-BASS, a limited liability company that specializes in the analysis, purchase, securitization and servicing of credit-impaired residential mortgages, is more focused than ever on its bread-and-butter industry - subprime securitization.
All of this despite the fact that this market has recently been under pressure from market forces.
"Because of the volatility of the swaps curve, we have seen a repricing in the subprime market, and a lower pricing [for subprime] than adjustable-rate mortgages," said Jim Schneider, director of business development at C-BASS. "ARMs are trading with a little bit more strength. But in terms of the market players involved in subprime, there are fewer of them, but they are better capitalized.
"So there is less concern overall about market participants getting into trouble going forward," he said.
The company announced last week that it had closed on a real estate mortgage investment conduit, backed by approximately $160 million of residential mortgage collateral.
Schneider said, the collateral consisted of a mixture of Federal Housing Authority and Department of Veterans Affairs, nonperforming, prime and subprime mortgages.
Lead-managed by Merrill Lynch & Co. and co-managed by Banc of America Securities, the publicly issued transaction, C-BASS Mortgage Loan Asset-Backed Certificates, Series 1999-CB4, represents the company's 10th securitization to date and its fourth of the year.
"We have a default management platform in our loan servicing business," Schneider added. "If any of these loans were purchased as subperforming, they have been reperformed before being placed into the securitization pool."
While Schneider did say that the company plans to do another securitization by year-end, the timing of the issue was still undefined.
"The current securitization is very similar in its structure and its collateral to previous deals we have done," Schneider explained. "The last few have been public, and market awareness of our name is growing. We have seen improved execution as we do deals and we are pleased with the market reception to our deals."
Servicing for the underlying collateral for the current deal was performed by Litton Loan Servicing LP, a C-BASS company. The certificates were rated by Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch IBCA.
According to market sources, a "severe repricing" in the subprime market has engendered prices stabilizing at lower levels than ever seen in the past. Prior to the fourth quarter 1998, subprime spreads were in the range of 105 basis points and 106 basis points over, whereas now they are closer to 103 or 104.
"There has been a modification about people's assumptions about speeds and losses," Schneider said. "And I think this change in thinking is healthy, because before, it was unrealistic. Since last year, many companies headed for trouble had gone into bankruptcy or merged with larger entities."
For the time being, C-BASS is going to stick with what it knows best. Despite the recent securitization of a U.S. reverse mortgage portfolio, and predictions from market players that reverse mortgage securitizations will be more common going forward, the company is most comfortable working with loss mitigation for delinquent mortgages, especially subperforming and nonperforming residential mortgages.
"We are singularly focused at C-BASS on residential product," Schneider said. "Though reverse mortgages could potentially qualify, we have not taken a serious look at that segment as of yet. We have seen a tremendous amount of growth where we are focused, and we certainly don't want to take our eye off the ball.
"We don't want to get involved in markets where we are not as sure of our footing."
