The Federal Deposit Insurance Corp. is tapping the securitization market to rid itself of assets from failed banks.
This time, the regulator will sell $409 million of mortgage bonds originated or acquired by 17 failed financial institutions.
The residential mortgage bond, called FDIC 2010-R1, will be wrapped by an FDIC guarantee, which is backed by the full faith and credit of the U.S. government. The issue is expected to price middle of next week.
Royal Bank of Scotland Group PLC, which is putting the deal together, is billing it at the first residential mortgage securitization from the FDIC this year. Earlier this year, the regulator sold nearly $4 billion of performing and nonperforming commercial and residential loans acquired over the past couple of years.
Since 2007, the FDIC has had to take over more than 260 financial institutions. Since then, the banking regulator has been looking at ways to sell the assets. The regulator has been eager to tap the securitization market, especially given the robust demand for such issues from investors looking for higher yields and safe investments.
In 2009, the banking regulator started selling some of the loans through a vehicle structured as a public-private partnership. In such deals, the buyer pays 20% of the assets’ value and tries to work out the loans by reducing the interest rate, extending the maturity, writing off some principal or getting buyers to put up equity.
If the loans start to perform, the FDIC, which retains 80% ownership, shares in the returns. The arrangement allows the FDIC to reduce its risk. Recently, the ownership of such structures have been altered, with private companies holding 40% interest in these entities, and the FDIC 60%.
By PRABHA NATARAJAN
Tags: home loans, housing market, interest rates, mortgage bonds, mortgage lenders, mortgage loans, mortgage payments, mortgage securities, US Economy
