GMAC-RFC disclosed last week data errors with respect to four RMBS deals it services from the RMAC series of RMBS deals. Fitch Ratings, Moody's Investors Service and Standard & Poor's responded by placing the ratings of the four RMAC transactions, totaling GBP3.4 billion ($4 billion), on review.
The errors relate to the information provided in the offering circular and information given to the rating agencies with regards to the basis for certain loans in the portfolio, such as an overstatement of LIBOR-based loans and a corresponding understatement of loans indexed to the Bank Base Rate in certain portfolios.
Basis risk is not hedged in the RMAC transactions and credit enhancement is sized by taking into account the unhedged risk in the pool, based on the proportion of Bank Basis Rate loans, according to Fitch analysts. The understatement of the Bank Base Rate proportion ranges from 1.77% to 21.67%. The affected transactions included RMAC 2004-NSP4, where 1.77% of loans in the original pool had loans inaccurately described as being Libor indexed. And at the other end of the spectrum, RMAC 2005-NS1 has 21.6% of the loans misclassified. RMAC 2005-NSP2, exhibits a discrepancy of 10.5% and RMAC 2005-NS3 misclassifies 6.81% of its loans.
The agencies will run a new analysis on the four transactions. If it's found that any of the deals would require higher credit enhancement, the agencies will discuss possible courses of action with GMAC. "The rating agencies typically require increased credit enhancement to cover the unhedged mismatch between note interest paid at a margin over Libor and mortgages paying Bank Base Rate plus a margin," explained analysts at The Royal Bank of Scotland. "GMAC indicated all of the loans were correctly serviced on its systems but that it was working with the rating agencies to ascertain the appropriate method of correcting this error'. We believe the company would take action, if required, to maintain the ratings, given the importance of the program to its strategy."
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