Other than recently bringing its first senior/subordinate subprime deal since 1998, and its third (and the market's third) transaction backed exclusively by first-lien high-loan-to-value loans, it's business as usual at GMAC-Residential Funding Corp. (RFC).
In fact, business is so usual at RFC, the company has closed more than 35 asset-backed and mortgage-backed deals year-to-date, for nearly $12 billion in proceeds, something not many issuers, or even investment banks, are able to claim.
RFC has without a doubt been one of most prolific issuers in the history of the ABS and MBS markets, with a combined total upwards of $151 billion since first securitizing in 1987, according to the company.
Not only dominant in volume, but RFC has set trends and quality standards in the market. For example, over the development of the home-equity and non-conforming mortgage securities markets, RFC has established a deliberate multi-shelf product line, which is becoming the model for other frequent issuers in the mortgage market and other asset classes.
RFC accesses five shelves: Residential Funding Mortgage Securities I (RFSMI) for fixed and adjustable jumbo product, Residential Accredit Loans (RALI) for fixed and adjustable Alt-A, Residential Funding Mortgage Securities II (RFMSII) for home-equity loans and lines of credit (series HS) and high-LTV (series HI), Residential Asset Securities Corp. (RASC) for subprime, and Residential Asset Mortgage Product (RAMP) for program exceptions (series RS) and first-lien high-LTV loans (series RZ).
"Regardless of what quality the loan is, we want to clearly identify the quality of the loan to the investor," said Eric Scholtz, executive vice president of capital markets, and 14-year veteran of RFC. "When you buy our products, you know exactly what you're buying."
In addition to being the first senior/subordinate structured subprime deal since 1998, RASC 2001-KS2, which priced early this month, was RFC's first deal to feature borrower-paid mortgage insurance (deep MI). RFC put additional MI on the pool via PMI Mortgage Insurance.
"While [deep MI] has been in the marketplace for the last 12 months, it took us a long time to get comfortable with it, and we particularly got comfortable with PMI and what they would and wouldn't pay for," Scholtz said.
RFC will consider the sen/sub structure on its RASC deals going forward. Apparently, the transaction was well received, pricing between two and five basis points inside of talk on most classes.
"We really hadn't put subprime sub bonds out there, so nobody had exposure to us, so there was great appetite for the sub bonds," Scholtz added.
While RFC has closed just three first-lien high-LTV deals as one of two products off its RAMP shelf, the company has been active in high-LTV since the early 1990's, and in fact was a warehouse provider for Remodelers National Funding Corp., which later become FirstPlus Financial.
RFC began purchasing high-LTV loans in 1997 from Master Financial, which RFC was also a warehouse lender to. The company began originating its own product the following year.
"We were learning the product from an arm's length, and then we created our own program and our own product, of which we did our first securitizations in 1998," Scholtz said.
Currently, RFC is securitizing a little more than $2 billion in second-lien high-LTV annually.
As for the first-lien high-LTV program (up to 107% LTV), which is issued off the RAMP shelf, RFC has only been issuing deals for the past year, so it's difficult at this point to compare its perfomance. However, because it is first lien, loss severity is expected to be lower than-second-lien products. Also, the borrower credit is generally higher for this product, in the 700-plus average FICO score range.
Significantly, while other issuers may issue deals with portions of first-lien high-LTV, RFC is the only one with the volume to issue entire deals backed by the loans, which adds that consistency investors like.