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S&P Downgrades A 4 Month Old JPM Re-REMIC,
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.
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Unrelated, and sorry for hijacking this post for my comment, but interesting:
China recently announces they will withhold their rare earth production for domestic use (China = 95% of global RE production). The one (or biggest) RE mine in US is in Mountain Pass, California. Owned by MolyCorp, bought by Chevron, then:
In the U.S., we have a company called Molycorp, which was owned by Chevron until two months ago when it was sold to a group consisting of Resource Capital of Denver and Goldman Sachs (GS), the financier, in New York.
http://seekingalpha.com/article/113622-jack-lifton-the-technology-metals...
GS MUST DIE
I think RE's will be the next sleeper investment gone wild. Some of them may well even surpass the price of PMs from their current levels. Some RE's are already worth more than gold or platinum.
Digging...
I am Chumbawamba.
I have been following RE elements for a while. I remember how we ignored that whole line in the periodic table. Now, with all the gadgets and hybrids, REs are very hot and getting hotter.
http://news.yahoo.com/s/nm/20090831/india_nm/india420934
Nothing like taxpayers guaranteeing the very same leverage-expansive product that was among the key reasons why were are here now. Animated Logo | Company Logo | Logo Design
Quelle surprise
How the hell do you downgrade class 2-A-2 and keep all others at AAA? So yeah, that stronghold you built has a significantly weakened wall but overall its as strong as the day it was built...
A downgrade to a non-investment grade means just that you don't expect it to receive 100 cents on the dollar in its original investment. If the sub-class receives 99 cents on the dollar, it is still non-investment grade. Classes above it in the waterfall would receive all principal, so might still be AAA.
1-A-1 and 1-A-2 are supported by an entirely different set of loans than the other two, so they are (somewhat) independent.
But both the 2-A-1 and 2-A-2 are supported by a single bond out of another deal (see my post below).
While I agree that it is possible for a sub-class to get a downgrade and a senior to not, it doesn't make sense in this case. Even if you think in an expected case the senior bond won't get hit, the probability it will get hit HAS to increase if your expected loss increases, unless you distribution narrows. How is that logical, given the uncertainty of underlying mortgage performance?
As it is, if you look at the underlying bond, it is going to get wiped out entirely. That bond was originally rated AAA, it is now B.
http://www.sec.gov/Archives/edgar/data/807641/000093041306000646/c40717_...
Thanks for sharing and keep up the good work..
Stationery Design | Brochure Design
Guess who originated the certs that support the "2" bonds? None other than Goldman Sachs. Those bonds are supported by the 1-a-11 bond from GSRMLT 2006-1F. The loans supporting 1-A-11? None other than Countrywide loans. The formating on this may suck, but here is the recent performance of the loans underlying this cert.
They are dreaming if they think losses will be capped at 3% for this pool. The entire 1-A-11 bond is going to be wiped out, and with it the two bonds in the re-REMIC.
These idiots never learn, do they? After all this, and they still can't project mortgage losses.
Distribution Date ------ Delinquencies ------ 30 Day 60 Day 90 Day FCL BK REO CumulativeNet Loss Rate Prepayment
Rate (CPR) Pool Balance
(000) Aug 2009 1.19% 0.66% 0.36% 3.30% 0.76% 0.07% 0.37% 13.40% 567,000 Jul 2009 0.84% 0.86% 0.54% 2.58% 0.67% 0.00% 0.33% 14.95% 574,469 Jun 2009 1.33% 0.72% 0.88% 2.29% 0.58% 0.00% 0.29% 13.40% 582,910 May 2009 0.94% 1.05% 0.73% 1.83% 0.66% 0.00% 0.29% 20.48% 590,586 Apr 2009 1.17% 1.20% 0.50% 1.61% 0.68% 0.00% 0.27% 8.98% 602,623 Mar 2009 1.76% 0.88% 0.70% 1.28% 0.51% 0.00% 0.27% 7.36% 608,020
Since Remic's involve the splitting of the securitisation into a high risk, high yield portion and a low risk low yield portion this has important implications for banks. Typically the high risk,high yield portion is held onto by the bank or gets sold to a hedge fund and the downgrade of the low risk portion means the high risk portion has almost been wiped out. Somebody took a big loss and this means there is going to be reluctance to take part in any more re-remics. This is a warning signal that the kick the can down the road for commerical real estate debt is coming to an end with losses tending to be far more concentrated than if they had left these things alone.