A report in The Wall Street Journal is offering guidance on the new Federal Deposit Insurance Corp. (FDIC) plan to use residential mortgages from failed banks to structure a securitization platform to get the loans off its books. The FDIC confirmed yesterday that it was planning such a deal. According to the WSJ, $409m of mortgage bonds originated or acquired by 17 failed financial institutions will be called FDIC 2010-R1 and will be guaranteed by the US government. The issue is expected to price middle of next week. Royal Bank of Scotland is putting the deal together. “If the loans start to perform, the FDIC, which retains 80% ownership, shares in the returns,” writes the WSJ‘s Prabha Natarajan. “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%.” Write to Jacob Gaffney. The author holds no relevant investments.

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