Re-REMICs (re-securitized real estate mortgage investment conduit) recently made a splash as a way to repackage securitizations: the only component of the shadow banking system that no matter how hard Bernanke tries he has so far been unable to restore. In fact Re-REMICs were recently seen as a way to salvage the CRE market even as the TALF has been foundering, so much so that CMSA has been pushing for Re-REMIC inclusion in the TALF program. Nothing like taxpayers guaranteeing the very same leverage-expansive product that was among the key reasons why were are here now.
Amusingly, Re-REMIC, which are supposedly much safer than traditional securitization conduits as they get to pick and choose classes which are presumed to be safer and only those are sold to erudite investors, are starting to go bust. The most recent example: today's downgrade by S&P of a class of a JP Morgan Re-REMIC issued a mere four months ago in May of 2009, the JPMRT 2009-3.
Standard & Poor's Ratings Services today lowered its rating on one class of certificates from JP Morgan Resecuritization Trust Series 2009-3 (JPMRT 2009-3). We lowered the rating on class 2-A-2 to 'B' from 'BBB-'. At the same time, we affirmed our 'AAA' ratings on three other classes.
The reason:
The downgrade reflects the significant deterioration in the performance of the loans backing the underlying certificate. Although this performance deterioration is severe, we affirmed the rating on class 2-A-1, which is within loan group 2, because class 2-A-2 provides credit enhancement to it. In addition, the affirmations on the classes from loan group 1 reflect the performance of the loans and available credit enhancement for the group 1 underlying certificate.
"Significant deterioation" in loans that were expected to be stable in those long ago days of May 2009.
Based on the losses to date, the current pool factor of 0.728 (72.8%), and the pipeline of delinquent loans, our current projected loss for this pool is 2.99%, which exceeds the level of credit enhancement available to cover losses passed through to the class 2-A-2 within the re-REMIC.
That's ok. Investors in the Re-REMIC will promptly brush this off as they prepare for not debt but equity investments in IPOs of companies that invest in just such comparable loan pools. Bernanke's moral hazard bubble is the guiding light as always.
Recent Comments