Is Springleaf Structure the Best that Non-Agency RMBS Issuers Can Hope For?

As further evidence that the US residential mortgage-backed bond market continues to sputter, the background details on Springleaf Financial’s recent sub-prime issuance are enough to make any securitization professional wince!

Forced into a financial corner, Springleaf’s management was compelled to utilize the “new” securitization rules, almost as a last resort, to help the company stay afloat.  They have chosen to, once again, dip into their legacy mortgage portfolio to raise nearly US$1Billion through a securitization structure.  Reuters published an excellent article detailing the checks, double and triple checks that were employed by Standard & Poor’s including but not limited to:

1) a third-party due diligence review of the mortgage portfolio

2) a mortgage originator review

3) a review of reps and warranties

4) a servicer ranking

5) a legal review

6) a financial strength review of the issuer and

7) an anti-predatory lending review

Any wonder why the Springleaf issue is only the third non-agency RMBS issuance in the post-Crisis era?

It used to be that securitization ran a close second to unsecured financing alternatives in the mortgage markets.  For some issuers, it was the preferred choice.  If government regulators need any further proof that “the cure is killing the patient” look at the hoops that Springleaf needed to jump through and the fact that they are only looking to securitization as a last-ditch option.

Some would argue that Springleaf is lucky to have gotten a sub-prime deal rated and in the market in the first place.  We don’t see it that way.  Something has to give!  Nothing that a little bit of pragmatism and a few less idealogues in the room wouldn’t cure.

Here’s a link to the complete Reuters’ article: http://in.reuters.com/article/2012/08/07/markets-credit-idINL2E8J7C8M20120807

About markferraris
Managing Principal Orchard Street Partners LLC

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