Some of the newest players in U.S. market for private-label residential mortgage securitization have ambitions in Europe as well, and Tony Ward, the incoming chief executive of Clayton Euro Risk, says that this represents an important opportunity for the due diligence firm.
Over the past 12 months, U.S. asset managers such as Cerberus Capital Management and Premium Point Investments have established securitization platforms, becoming some of the most active issuers of RMBS. WinWater Home Mortgage, formed by some principals of Premium Point, has completed three private label-deals this year, for example.
And FirstKey Holdings, a mortgage aggregator majority-owned by funds managed by Cerberus, completed its second RMBS in February.
Ward said that at least one U.S. asset manager is putting together a scalable funding program in Europe that could attract mortgage originators. Ward, who was speaking in a telephone interview last month, did not name the firm, but said that the program will be based in the U.K., “because this market is large and well understood.”
There are some £1.3 trillion of U.K. mortgages outstanding, and before the financial crisis, both banks and non-bank lenders relied on securitization to help fund their lending. Following the financial crisis, there was sharp a decline in mortgage lending and securitization; while lending has since picked up, cheap funding from the central bank has held back the recovery of securitization. Issuance of RMBS fell to £6 billion in 2013, the lowest level since 2007, according to the Association for Financial Markets in Europe
Now, however, government’s funding for lending scheme is winding down, while investor demand for RMBS and other kinds of exposure to U.K. mortgages is strong.
“It’s inevitable that, as [old] lenders return and new lenders come in, we are going to see bigger demands for securitization, said Ward
Ward thinks that Clayton can play in important role providing ongoing monitoring and qualitative analysis of loans being warehoused and securitized. Having an independent party in this role would give comfort to the asset managers, end investors and rating agencies, he said.
“We can either do this for banking and other institutions that are commencing mortgage lending for the first time or we can do it for third party funders like warehouse funders.”
Clayton’s core business is providing underwriting, due diligence, quality control, credit policy reviews, and operational consulting services to capital markets firms, including buyers of residential mortgages. It has been looking to expand its offerings around the world since being acquired last year by mortgage insurer Radian Group.
Ward’s appointment is part of that effort. A leading figure in the U.K. financial sector, he joins Clayton Euro Risk from Home Funding, which he led from 2006 until last month. During his career, which spans 40 years, Ward founded Kleinwort Benson’s mortgage originating and securitization business, Mortgage Funding Corporation PLC; served as chairman of the Intermediary Mortgage Lenders Association (IMLA); and as deputy chairman of the Council of Mortgage Lenders.
During the recent economic recession, Ward served as chairman of the Mortgage Funding Group, which looked at ways to restore liquidity to the U.K. mortgage market. He has also provided technical consultancy services to U.K. financial regulators and to Her Majesty’s Revenue and Customs, the arm of the U.K. government responsible for collecting taxes and providing some forms of state support.
At Clayton Euro Risk, he replaces Michael Bolton, who had led the company since May 2013. Teresa Gallagher, who was co-chief executive with Bolton, will report to Ward as chief operating officer, although the firm says that she will continue to have the same responsibilities as before.
Another business area Clayton Euro Risk hopes to develop is in value added risk analysis and risk solutions to banks and other financial institutions. That, said Ward could include everything from doing work with central banks when “they look at major banks in Europe that are seeking further capital support, assessing potential risks on balance sheet and forecast forward risk to determine how much more capital is needed and what are the downside risks.”
While Clayton already provides these kinds of services, “I think we could do more of it,” said Ward. “Apart from just risk analytics I’d like to see us working on more risk solutions for these organizations and that plays to the strengths of Radian.”
Along with the new areas of growth, Ward said that Clayton would continue to expand its foothold on surveillance, asset quality reviews and due diligence in Europe.