RMBS Pricing in Chaos

Moody’s Investors Service reported that the subprime crisis has resulted in a flight-to-quality that is affecting even good assets. Consequently, the market cannot determine pricing.

“Panic is driving a lot of the pricing and lack of confidence is painting all assets — good and bad — with the same broad brush so that, in some cases, even good collateral cannot be sold or financed at anything approaching its true value,” said Moody’s Vice Chairman Christopher Mahoney in a statement. “Often there is no bid at all, regardless of the price; there is no way to mark to market, and some other method — mark to model — must be recalibrated to incorporate recent experience which will bring their outputs closer to the cash secondary market.”

“The markets will reopen when secondary market prices rise, or inventories are marked down enough to sell, which should eventually occur,” Mahoney added.

Delta Financial Corp. announced today it priced a $900 million securitization at materially less favorable terms than in past quarters. The deal, rated by Standard & Poor’s Ratings Services and Moody’s, was structured as a real estate mortgage investment conduit gain-on-sale securitization where all bonds were sold while the residual interest is projected to be sold.

The transaction was closed through Delta-subsidiary Renaissance Home Equity Loan Trust 2007-3 and clears out most of the company’s warehouse pipeline, according to the announcement.

Delta blamed “the highly illiquid market conditions where virtually no mortgage-related securitizations are being consummated or sold” for the lousy execution, noting it expects future RMBS execution to improve based on recently implemented tighter guidelines and higher note rates.

Among residential mortgage-backed securities downgraded were classes of Bear Stearns Asset Backed Securities I Trust Series 2004-BO1, according to Moody’s. The agency blamed a decrease in available credit enhancement for the action on the subprime deal.

Classes of Merrill Lynch Mortgage Investors Trust Series 2003-HE1, were also downgraded by Moody’s because current credit enhancement levels were too low to support previous ratings given the existing delinquency pipeline on the subprime transaction, a press release stated.

Moody’s reportedly downgraded four tranches from two Countrywide securitizations. The affected issues, CWMBS Inc. Structured Pass-Through Certificates Series 2003-R3 and Reperforming Loan REMIC Trust 2003-R2, have seen higher losses than originally anticipated.

WaMu Mortgage Pass-Through Certificates Series 2004-RP1 saw three tranches upgraded and two tranches downgraded by New York-based Moody’s. The announcement indicated the upgrades on the deal backed by FHA-insured loans and VA-guaranteed reperforming loans resulted from low cumulative losses to date, while the downgrades reflected higher than anticipated losses on affected tranches.

Fitch Ratings reported it upgraded $13.1 million in classes of Sequoia Mortgage Funding Corp. mortgage pass-through certificate Series 2004-12, reflecting an improvement in the relationship of credit enhancement to future loss expectations on the adjustable-rate mortgages backing the deal.

On the commercial side, Fitch announced upgrades to five classes of GS Mortgage Securities Corporation II’s commercial mortgage pass-through certificates series 2001-LIB — reflecting the full defeasance of the loan in August.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com