Wednesday, January 30, 2008

BoA actually securitizing an Alt-A deal

(Housing Wire) Given the illiquidity in the capital markets right now, the fact that any sort of securitization at all — particularly in subprime or Alt-A — is taking place ought to be news.

Which is why Moodys’ rating of an $834 million BofA Alt-A deal on Wednesday is worth noting. The deal, Banc of America Mortgage 2008-A Trust, is described by Moody’s as being “backed by Bank of America, N.A. originated adjustable-rate, residential first lien Jumbo mortgage loans.”

A look at the prospectus tells much, much more than that. It turns out that this is a deal backed predominately by SISA (stated-income, stated-assets), interest-only jumbo ARMs, the vast majority of which were originated in California during the back half of last year to borrowers with outstanding FICO scores. All loans were originated by Bank of America directly.

Certainly changes the flavor this deal, doesn’t it?

Moody’s, for the record, said in a press statement that it expects collateral losses on this deal to range from 0.40 to 0.50 percent.

Let’s dig a little further: we’re looking at 1,191 mortgage loans totalling $885.6 million in aggregate as of the cut-off date. Of those loans, more than 75 percent are considered “non-standard,” meaning full documentation was either reduced or completely eliminated; nearly 60 percent of loans are stated-income.

More than 70 percent of the loans were originated in California. Nearly 40 percent of the loans have principal balances over $800,000; and roughly 65 percent will see a reset in 2012 (meaning borrowers took out a 5-year interest-only ARM, many ostensibly without documenting their income).

I bring all of this up because Moody’s — like any rating agency — bases its ratings in large part on the credit quality of the loans. And on the surface, these are mortgages given to borrowers with not just good credit; these are borrowers with dynamite credit, since more than half of all borrowers have FICO scores over 750.

That being said, I’m not sold that credit quality is really as high as it might appear here.

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