Amherst Sees 'Inconsistent' Triple-A Re-REMIC Ratings
Re-securitized real estate mortgage investment conduits, or re-REMICs, have exploded in activity this year, according to monthly mortgage industry insight from Amherst Securities Group. Residential mortgage-backed securities (RMBS) originally rated triple-A have been downgraded to below investment-grade levels, leaving investors with insufficient cash flows. Re-REMICs allow for maximized cash flows on downgraded bonds by re-tranching the original security into a new, properly enhanced triple-A security and a junior bond, according to Amherst. After a long year of busy re-REMIC activity, Amherst sees $43bn of re-REMICs through month-end in November, more than five times the volume in 2008. But ratings on re-REMICs have been "patchwork," with not all agencies willing to rate the securities, Amherst said. Most re-REMICs, in addition, go ahead with only one rating, making for "inconsistent" triple-A re-REMIC tranches. In other words, Amherst said, "not all triple-A ratings are created equal." "Just to be clear, creating re-REMICs is a sound, viable practice," Amherst said. "However, some of the rating splits that have been awarded produce [triple-A] re-REMIC tranches that could take losses under moderate stresses, or potentially be downgraded at some point." Amherst, as a result, advised investors to conduct their own due diligence rather than rely on ratings alone. Write to Diana Golobay.