RMBS

The current crisis has drawn into sharp focus concerns that structural features in some securitization transactions may need to be re-assessed to ensure they are adequate in mitigating the impact arising from possible failures of servicers or other transaction parties. Moody's believes that the performance of a securitization transaction depends not only on the underlying collateral performance but also on the effective performance by such transaction parties of their responsibilities. Our November 2009 publication on this topic, Operational Risks in Securitizations to be Revisited, cites several occurrences where nonperformance of a transaction party may have detrimental effects on a transaction's performance regardless of the underlying pool's performance. We refer to this risk as "operational risk,"

Securitization Focus

When the European Central Bank (ECB) unveiled its €750 billion ($952 billion) bailout package to help stabilize the euro against the U.S. dollar, it addressed the crisis of confi dence created by fears of contagion over Greece’s sovereign risk.

ABS players are closely monitoring the Greek government's struggles and assessing how they'll impact European securitizations.

Recently the Securities and Exchange Commission (SEC) granted a temporary exemption from Rule 17g-5(a)(3) for credit ratings provided to most ABS, MBS and other structured finance securities of non-U.S. issuers. This reprieve expires on Dec. 2 and extends from June 2, which is the rule's effective date for domestic firms.

After two years of hibernation, the non-agency RMBS may be re-emerging.

The credit crisis has forced MBS investors to adopt new tactics. Notably, they have to take a closer look at the collateral backing mortgage bonds. But the analysis goes beyond that. Investors now need to look at home prices in a geographic region and consider the health of local economies where the homes are actually located. Ahead of the crisis, little attention was paid to whether a property was owner-occupied or if there were multiple liens on a single property. Now, issues like these make a world of a difference. Then there is the question of what actually makes a borrower walk away from a loan? Some observers believe geographic location has much to do with a homeowner's decision to default on their mortgage. Having clues to the roots of a default can help market participants better size up the value of a pool of whole loans or securities out for bid. ASR recently met with some of the market's leading analysts and observers to learn about the leading indicators of a default in a mortgage-backed bond. That discussion, which was moderated by ASR's contributing editor Aleksandrs Rozens, was sponsored by 1010data - a provider of tools and analytics used by many mortgage bond investors today. Interestingly, the panelists agreed that even if the data to look deep in the mortgage bonds were available ahead of this credit crisis, few investors would have held off from snapping up the riskiest mortgage securities. Why? The appetite for risk was just too great.

Barclays Bank has agreed to sell HomEq Servicing, its U.S. mortgage servicing business, to Ocwen Loan Servicing, a subsidiary of Ocwen Financial Corp.

The Federal Deposit Insurance Corp. (FDIC) next week will begin exploring investor appetite for $1 billion worth of mostly nonperforming whole loans that belonged to the now-defunct AmTrust Bank of Cleveland, market sources told National Mortgage News.

The mortgage industry is getting a handle on the Brave New World it is currently in, but it still seems a little unsure about which way it is headed due to two recent developments muddying housing and interest rate outlooks.