Outside of the U.S., GMAC-RFC has been originating mortgages in the U.K. since 1998, and expects to issue between E700 million and E800 million (north of $US1 billion) by the end of the year, according to Chris Nordeen, president of the RFC's European operation.

Notably, RFC is hoping to bring its first-ever U.S. dollar-denominated securitization backed by U.K. mortgages in July.

So far, RFC has brought seven U.K. deals, averaging two to three annually. The company is also selling a portion of its portfolio on a whole loan basis.

At first, RFC was originating loans comparable to U.S. non-confirming loans, called non-standard in Europe. Now though, the company is lending all the way down to subprime.

Like the U.S. classes that sell well in Europe, RFC U.K. deals are generally floating-rate, and benched off Libor.

"What we've found is that the European investors that bought our securities in the U.S. have stayed with the family, so to speak, and have bought the sterling securities that we've offered," Nordeen said. "We've had the benefit of the name recognition, carried into a new asset class."

Like its U.S. counterpart, RFC Europe has the same commitment to providing investor information and transparency. Currently, the delineation of product is less developed than in the U.S., where RFC uses its five-shelf plate of offerings to divide the market.

"As of right now, it's a little bit more mixed than you'd find in the U.S.," Nordeen said. "Our hope, over time, as our volume increases, we'll be able to make more differentiations."

According to Nordeen, the non-standard mortgage securitization market could grow to be between 15% and 20% of the total mortgage market in the U.K.

"Securitization is becoming more accepted [in European mortgage banking]," Nordeen said. "If you look back four years ago, there were a few issuers, and they were smaller, innovative companies. A lot of the long-time market players thought it was a short-term phenomenon. Now there are some fairly big players in the market. The market has not gone away. If anything, it's gotten deeper."

Across the continent

RFC recently began originating mortgages in Holland, and hopes to bring its first securitization of Dutch mortgages within the next six to nine months. Early this year, the company added eight to its team to launch the Dutch operation. Currently, RFC is originating through Dutch insurance companies and brokers.

In Europe, different regions have different mortgage banking regulations, pricing structures, technicalities and penalties. For example, English mortgages are floating rate, while Dutch mortgages are fixed-rates, with fairly severe redemption policies. In the U.S., mortgages are generally fixed-rate, without severe redemption policies.

Also, the borrowers from different countries and regions may have different incentives for being borrowers. In England, there is no interest tax-deductibility, while in Holland there is.

"So the kind of mortgage you take out in one country is different than the kind you take out in another," Nordeen said.

So far, RFC has not found the economic incentive to cross securitize, or to package securities backed by a mix of mortgages from different regions.

"It's probably something that you could do right now," Nordeen said. "But generally, investors like stories that they can understand easily. So if you have all sterling collateral, it's probably easier to understand the foreclosure laws, the redemption penalties and the regulations, than if you tried to mix in two different schemes of regulation."

Developing markets

"Generally, I've found investors have allowed us to tell our stories in a lot of different ways, and they're interested in learning how we're growing in different regions," Nordeen said. "A lot of times, they're learning through us how mortgages work in different markets."

Further, being able to tap mortgage collateral from different parts of the world, and having a leg into different currencies, gives RFC a remarkable advantage in the globalization of the mortgage market.

"Sometimes [an account] will say, I don't have enough room in my sterling portfolio, could you try the same security in dollars,' and we have the ability to do that," Nordeen said.

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