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Repurchases, Accountability and the Return of a Healthy Securitization Market

Repurchases have been getting lots of attention lately, as investors pursue them on seasoned MBS and issuers defend against them. The numbers can be large, even on an individual loan. The rules have always been poorly defined and there are many complications: how much should be paid out, who gets it, how the different bond classes are affected, and so on.

A lot of analytical and legal resources are focused on repurchases currently, given the challenging issues. One challenge is the difficulty investors have in gaining access to underlying loan documents, which would enable them to determine if a loan violated stated guidelines or not. Another is that some investors are looking for resolution on loans that are clearly in violation; others seek repurchase for any loan that could have been in violation and experienced a loss.

Repurchase work is becoming a separate line of business for some in the industry, although not for us at Allonhill. Our business is due diligence and credit risk management for MBS. Credit risk management includes providing analytical support for repurchases. We look for loans that don’t meet the stated guidelines they were supposed to have when contributed to a securitized pool. We also support claims against parties to the transaction for hard money lost, such as servicing fees paid after a loan was liquidated. All of these result in actual dollars being paid to the investor in an RMBS, via the trustee.

While repurchases are not an area of focus for us, we believe investors and originators deserve to have their interests represented, and to file claims, defend claims and counter- claim as they see fit. Good firms with a high degree of mortgage securitization and loan review expertise are providing support to help both parties understand the underlying facts behind mortgage loans.

We know that due diligence performed in a truly independent fashion, under rigorous standards and with meticulous error tracking and reporting, is critical to bringing back investor confidence. We also know that credit risk management is critically important as securitizations come to market. We aim to be the premier firm for securitization due diligence and credit risk management. Our job is to provide the investor with credible information, and to represent the investor’s interests in a securitization. When a securitization happens, we believe the parties are coming together with the intent to produce a good and viable security and to invest in a valuable asset. By holding all parties accountable, we can help bring back confidence and liquidity to the market.