Friday, March 19, 2010

FDIC Prepares $653m in RMBS Notes from Failed Bank

Original posted on the Housing Wire by Diana Golobay:

The Federal Deposit Insurance Corp. (FDIC) is preparing a $653m structured financing offering, its third such platform, from assets seized from the failed Houston-based Franklin Bank. The notes, which will carry an FDIC guaranty, are backed by prime residential mortgage-backed securities (RMBS), DebtWire reports.

The deal is part of the Structured Sale Guaranteed Notes 2010 platform. It follows the pricing of $1.81bn of notes backed by 103 non-agency RMBS. The RMBS are collateralized by 5,101 mortgages (primarily performing) and some REOs with a total unpaid balance of $1.2trn, according to the pre-sale report.

The mortgage assets, at an average unpaid principal balance of $240,000, are concentrated in California, Florida, Texas, New York and Virginia. Of the total unpaid balance, 65% is current and 16% is in foreclosure. The remaining term to maturity is 304 months, and the average borrower’s FICO score is 668. There is a weighted average coupon (WAC) of 5.6% on the deal.

The pre-sale report on the deal notes various risks to the transaction, including a lack of liquidity, restrictions on transfer and the absence of a secondary market, as it is “uncertain whether such a market will develop.”

Additionally, the report notes, developments in residential real estate might adversely affect performance of the notes and drag down value. but that’s not the only risk.

“The increase in delinquencies, defaults and foreclosures… has not been limited to ’subprime’ mortgage loans, which are generally made to borrowers with impaired credit,” the report states. “The increase in delinquencies has also affected ‘Alt A’ mortgage loans, which are generally made to borrowers often with limited documentation, and also ‘prime’ mortgage loans, which are generally made to borrowers with relatively higher credit who frequently provide full documentation.”

Barclays Capital is acting as sole bookrunner on the deal and Citibank is the custodian on the deal. The assets are serviced by Residential Credit Solutions.

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