There has been an increase in the use of monoline wraps for tranches of sub-prime U.K. residential mortgage-backed securities, and bankers and analysts expect this trend to continue. Most recently, Southern Pacific Mortgage Lenders used a wrap on its £350 million securitization, as did GMAC on its £1 billion deal. Birgit Specht, head of European securitization research at Dresdner Kleinwort Wasserstein in London, says investors are more concerned about the U.K. sub-prime sector because of uncertainty about home prices. Monoline wraps give investors greater comfort with a deal, bankers and analysts say.
An official at a monoline insurer says he is seeing a number of inquiries from sub-prime lenders, where he used to see none. In the past, GMAC has been the only sub-prime lender to use a wrap on its RMBS deals, but now due to increased investor nervousness, the monoline official says many more issuers are looking at wraps.
Specht says that while many existing sub-prime RMBS deals have been upgraded, investors are concerned about new deals, because the U.K. property market is perceived to be deflating from all-time highs in property prices. The triple-A rated tranche of Kensington Mortgages' upcoming RMS14 deal, which will not feature a wrap, is being talked at a price of 48 basis points over LIBOR, compared to 45 basis points over LIBOR for Southern Pacific's £82.5 million triple-A tranche.
