Servicers Lined Up for Securitization
9 March 1992
Thrift Liquidation Alert Harrison Scott Publications, Inc.
Vol. 4, No. 10E
To help streamline its mortgage-backed securities output, RTC plans to prequalify a group of loan-servicing firms to handle securitized mortgages.
The agency's new securitization adviser, Prudential Securities Inc., is helping plan the prequalification effort. The aim is to assemble two servicing groups - one for single-family loans and another for multi-family and commercial mortgages.
About 50 firms are expected to receive invitations to bid. In addition to meeting other criteria, the servicers can only be prequalified if they meet the approval of the major credit-rating agencies. Since maturities on pooled mortgages can be 15 to 30 years into the future, the agencies look for financial strength, or staying power, in loan servicers. A mortgage- backed securities issue is considered to be only as strong as its "weakest link," which can be the servicer.
Kenneth J. Bacon, assistant director in charge of RTC's securitization program, plans to hire servicers one at a time for issues coming up in the near future. But after that, he hopes to choose from the stable of prequalified servicers.
It's not yet clear whether the agency will prequalify both master servicers, which only process loans that are performing well, and special servicers, which handle loans that become delinquent.
In the first commercial mortgage-backed securities issue, which closed earlier this month, Security Pacific National Bank was master servicer and Equitable Real Estate Investment Management Inc. was special servicer.
As of last week, Bacon was awaiting Securities and Exchange Commission approval of RTC's registration statement for the agency's second commercial mortgage-backed issue, 1992-C2. Salomon Brothers Inc. will lead-manage that deal, which is expected to come to market later this month.
Meanwhile, proposals were due last Friday from securities firms wishing to be part of RTC's expanded underwriting group. Bacon intends to line up a total of 10 firms to manage mortgage- or asset-backed securities issues. That probably means another three will be added to the seven current underwriters: Salomon; Bear Stearns & Co.; First Boston Corp.; Goldman, Sachs & Co.; Kidder, Peabody & Co.; Lehman Brothers Inc., and Merrill Lynch & Co. The seven must compete for spots in the new group, but should have a decided edge over newcomers.
Selected firms will be placed into as many as four subgroups to handle specific types of securitized deals: Residential mortgages (including one- to four-family and multi-family); commercial mortgages; consumer loans (including manufactured housing contracts, auto loans, boat loans, second mortgages and credit card receivables), and subordinated mortgage securities.