FDIC Closes on Pilot Securitization of Mortgages from 16 Failed Banks

The ""FDIC"":http://www.fdic.gov has closed on a sale of securities as part of a securitization backed by approximately $471.3 million of performing single-family mortgages from 16 failed banks.

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This pilot program marks the first time the FDIC has sold assets in a securitization during the current financial crisis â€" a method which could allow the federal agency to clear billions of dollars in seized loans from its books.

The FDIC uses several strategies to sell assets from bank closings. According to a statement from the agency, securitization is a key strategy that will allow it to maximize the value of these assets for the failed banks' creditors.

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The pilot program consisted of three tranches of securities. Approximately $400 million senior certificates, which were sold late Friday, represented 85 percent of the capital structure and are guaranteed by the FDIC. The fixed-rate, senior note sold at a coupon of 2.184 percent and is expected to have an average life of 3.66 years.

The subordinated certificates are comprised of a mezzanine and an over collateralization (OC) class representing 15 percent of the capital structure. The subordinated certificates will be retained by the failed bank receiverships, which may sell all or a portion at some point in the future.

As outlined by the FDIC's proposed Securitization Safe Harbor Rule, the pilot program sale incorporates procedures that align servicer compensation with resolving problem loans and minimizing losses to the trust.

Delinquent mortgages will be considered for loan modification consistent with the Home Affordable Modification Program (HAMP) or the FDIC's loan modification program. The transaction also provides for independent third-party oversight of overall performance.

The lead underwriter was ""RBS Securities"":http://gbm.rbs.com/psp/public/pagebuilder.aspx?page=gp1601. Three co-underwriters were also used: ""Bank of America/Merrill Lynch"":http://www.ml.com/index.asp?id=7695_15125, ""Deutsche Bank"":http://www.db.com, and ""Williams Capital"":http://www.willcap.com.