Mortgage Informer

A unit of the government-controlled insurer American International Group is offering the first of two new residential-mortgage-backed securities worth a total of $1.8 billion, priming the pump for the return of so-called private-label mortgage-backed securities.

American General Finance Corp., through American General Mortgage Loan Trust 2010-1, is selling what could be the first of many deals, a $1 billion issue backed by existing prime and Alt-A residential loans made in 2003 and 2004. The triple-A tranche of $501.33 million is expected to yield 5%.

The company also is offering a second mortgage-backed deal of $800 million that is expected to be sold next month.

The first issue, backed by loans that are all current in their payments, carries a 50% credit enhancement to protect investors in case of default, and this has helped attract investors, one portfolio manager who has seen details of the deals said. RBS is the lead manager of the sale.

As a private-placement deal, the offering is being made only to select investors considered sophisticated enough to independently assess the offering’s risks. This is another sign that investors are willing to take more risk in search of higher yields. Residential-mortgage bonds backed by risky loans to borrowers with poor credit were the first to fall and are blamed for starting the credit crisis.

But the offer of good yield and credit protection, along with the fact that these borrowers have been current on their loans for more than six years, gives a boost to investors’ confidence in this new bond.

At its peak, the residential-mortgage-bond market was more than $2.5 trillion in size, with large billon-dollar deals hitting the market every week. After the fallout in subprime, issuance ground to a halt.

Since the crisis, the mortgage-bond market has been dominated by deals that carry guarantees from Fannie Mae, Freddie Mac and Ginnie Mae. Over the past year, there have been a slew of resecuritizations of existing residential-mortgage bonds.

In the past few months, there have been new deals but mostly small, customized offers to a small pool of clients. Earlier this month, the Federal Deposit Insurance Corp. sold three structured deals backed by a pool of performing and nonperforming loans, including home mortgages, and found a strong reception among buyers.

Last July, American General Finance sold $1.6 billion of existing loans in a private securitization deal through Credit Suisse. Terms of the deal required the company to repurchase loans or substitute similar mortgage loans for deficient loans.

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Tags: Mortgage, mortgage market