11/05/2010

BlackRock Maneuvering for MBS-Issuer Role

Asset-management giant BlackRock is taking steps to become an issuer of mortgage-backed securities.

The bond sales would mark the exit-strategy phase of a plan by the $3.4 trillion shop to begin buying newly written jumbo home loans from pre-qualified originators. The resulting deals would start at $200 million to $250 million.

The effort is being led by former Wachovia securitization chief Randy Robertson, who joined New York-based BlackRock in April 2009 to help lead a unit that buys structured products.

Like other potential issuers, BlackRock isn't likely to pull the trigger on its first transaction until pending regulatory changes come into sharper focus. For example, the firm is awaiting the outcome of proposals that would affect risk retention, disclosure rules and rating-agency liability. The regulations "keep morphing, and nothing's final," one investment banker said.

And in any case, it will take time to amass a sufficiently large pool of bond collateral. BlackRock intends to finance its mortgage purchases through its BlackRock Mortgage Investors Master Fund, whose current investments are focused on distressed home-loan bonds.

In assembling its securitizations, BlackRock plans to implement multiple safeguards to reassure investors concerned about loan-underwriting standards. For starters, the mortgages will be written to BlackRock's specifications. Then they'll undergo due-diligence reviews before the firm commits to any purchases. And servicing will be handled by outside contractors with no connections to the originators.

BlackRock would keep most deals' first-loss pieces.

If securitization turns out not to be an option, whether because of concerns about regulations or funding costs, BlackRock would consider other ways to give investors a crack at the mortgages. They might include issuing so-called participation certificates, which were popular in the 1980s before securitization caught on. Participation certificates function in much the same way as structured sales that the FDIC employs to sell interests in loan pools seized from failed banks.

BlackRock was a frequent issuer of collateralized debt obligations prior to the credit crisis, but it hasn't sold mortgage bonds before. Now, the firm is among a small but growing number of asset managers interested in stepping into that role - which was largely abandoned by big banks during the market downturn.

For example, Pimco began assembling a team earlier this year to buy and securitize home loans. But BlackRock's plan is attracting particular interest due to the firm's massive size, which could make it a bellwether for a market recovery.

For Robertson, the effort marks a return to his roots on the sell side. He was in charge of securitization underwriting at Wachovia, and before that led structured-product trading at predecessor First Union.

Back Print