Legacy private-label RMBS market participants should take note: junior bondholders in certain vintages of low-rated nonagency RMBS have, in some cases, ended up with a payoff due to slow liquidation timelines, and a “rare” servicing transfer risk has surfaced, according to two recent rating agency reports.

A servicing transfer recently led to a swap termination, causing a sudden halt in cash flows. The disruptions in cash flows led the trust to not receive any principal.

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