Standard & Poor's last week revised the way it rates seasoned NIM transactions.
Now, seasoned NIMs - transactions whose underlying collateral have experienced at least five cashflow distributions - will be split into two separate categories. NIMs from deals that have experienced up to six distributions before issuance will be in one category, and those transactions with seven or more distributions will be placed in another. Also qualifying as a seasoned NIM is a re-NIM, a resecuritized residual from a previous NIM deal.
"It is fairly minor, more of a clarification almost," said Terry Osterweil, an analyst at S&P.
Previously, NIMs were considered by S&P to be seasoned after 120 days or more between the closing date of the underlying transaction and the closing date of the NIM securitization. Because some deals came in on the cusp, the agency changed the criteria to clarify the definition, said fellow analyst Waqas Shaikh.
For seasoned NIMs, S&P revised its outlook for defaults and delinquencies on the pool by adjusting its default curve, and the associated loss, so that it is more in line with the number of cash distributions the underlying collateral has received prior to the NIM securitization.
The change was not a result of any increase in default or delinquencies, the analysts said.
Rather, recent performance of NIMs in the market has been positive due to rapid prepayments, according to Osterweil. The prepayment speeds on NIMs have accelerated as borrowers have continued refinancing their mortgages in order to take advantage of historically low interest rates. For subprime borrowers, refinancing is likely to entail the payment of a prepayment penalty. "You are getting a lot more prepayment penalty money," Osterweil said.
The analysts said they anticipate a robust NIM market going forward. That opinion was echoed by Dominion Bond Rating Service analyst Quincy Tang earlier this month, who said in research that NIM securitizations have been consistently outperforming expectation in recent years.
"I don't see issuance dropping off, I think it is going to be a pretty steady volume, as we've been seeing. There is growing, if not sustained appetite for NIMs from the investor community. Expect them to stay where they are, if not grow," S&P's Shaikh said.
Shaikh added that S&P is receiving inquiries from more investors looking to launch re-NIM securitizations, only a handful of which have hit the market so far.
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