FDIC Closes On Pilot Securitization Of Failed-Bank Mortgages

Posted by Orb Staff on August 03, 2010 No Comments
Categories : Residential Mortgage

The Federal Deposit Insurance Corp. (FDIC) last week closed on a sale of securities as part of a securitization backed by approximately $471.3 million of performing single-family mortgages from 16 failed banks. The investors represented a wide variety of organizations and paid par for the senior certificates, the FDIC says.

The pilot program marks the first time the FDIC has sold assets in a securitization in the current financial crisis.

The program consisted of three tranches of securities. Approximately $400 million in senior certificates, which were sold Friday, represented 85% of the capital structure and are guaranteed by the FDIC. The fixed-rate, senior note sold at a coupon of 2.184% and is expected to have an average life of 3.66 years.

The subordinated certificates comprise a mezzanine and an over-collateralization class representing 15% of the capital structure. The subordinated certificates will be retained by the failed bank receiverships, which may sell all or a portion of the certificates at some point in the future.

The pilot program is consistent with the FDIC's proposed securitization safe-harbor rule, except for certain limited differences necessitated by the origin of the collateral and the absence of information available from the failed banks.

As outlined in the proposed rule, the deal incorporates transaction-governance procedures that align compensation of the servicer with resolving problem loans and minimizing losses to the trust. Delinquent mortgages will be considered for loan modification consistent with the Home Affordable Modification Program of the FDIC loan modification program. The transaction also provides for independent third-party oversight of overall performance.

The lead underwriter was RBS Securities. Three co-underwriters – Bank of America/Merrill Lynch, Deutsche Bank and Williams Capital – were also used.

SOURCE: FDIC

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