A veteran mortgage ooriginator is planning an entrance into the alternative-A sector of the securitization markets, aiming to take on the government-sponsored agencies and create a third liquidity source for borrowers. Alliance Bancorp unit AB Mortgage Securities Corp., is currently developing a redesigned Alt-A origination program, based upon an underwriting model not weighted by the borrower's credit score, with the aim of bringing the Alt-A market back to where it was initially intended - out of the hands of Fannie Mae and Freddie Mac.

Spearheaded by Mary Glass-Schannault, executive vice president of Alliance Bancorp, who first developed Alt-A lending as one of the founders of Impac Mortgage Holdings, plans to hit the road soon with its new underwriting philosophy and model for its originations with the aim to bring its first issue sometime in the fall.

Glass-Schannault is working with underwriter Lehman Brothers with which she had previously developed relationships while at Impac, as well as with PMI insurer Radian Group Inc. in developing the new underwriting model.

Alt-A mortgages, which lack the income disclosure as standard conforming loans, were never intended to be credit score-based, notes Glass-Schannault, who intends to take a more balanced approach to assessing borrowers. While the new model is still in the developmental stages, Glass-Schannault assures it will look more at loan-to-value and residual income than FICO scores.

Due to the reliance on credit scoring as the be-all/end-all for loan underwriting, the agencies have pulled the "cream of the crop" out of the Alt-A sector, leaving a bifurcated pool of originations to securitize. "When we developed Alt-A lending, the philosophy was to look at credit differently than the GSEs," Glass-Schannault says.

AB Mortgage plans to hit the road this summer, outlining to investors its goal to create a new alternative to the alternative-A borrower. Going forward AB Mortgage plans to bring $1 billion of supply to market in 2003.

After the issuer gets its story out to the market, Glass-Schannault expects AB Mortgage Alt-A mortgage-backed securities to price at a premium to the more recognized Alt-A lender's deals. But she does not expect to price through Fannie Mae or Freddie Mac, it is not seen coming overly cheap to GSE paper either.

"We want this program to compete with the GSE's" says Glass-Schannault. "I am looking to bring the Alt-A market back to where it was intended when we developed the idea in the early 1990s."

In an ironic twist, the issuer name was intended to divert investors from associating San Francisco-based Alliance Bancorp with the First Alliance Bank that was embroiled in a predatory lending scandal in 2000. The initial name of the issuance entity, EMAC Securities Corp., was changed one day after its initial shelf registration was filed with the Securities & Exchange Commission, to divert investors mistaking it for troubled franchise lender Enterprise Mortgage Acceptance Company.

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