Cherry picking reopens mortgage-backed market

Low doc loans, high loan to valuation loans and less well seasoned loans are all backing up in lender's warehouses as lenders select pristine pools for their return to the mortgage-backed bond market.

The market for mortgage-backed securities continues to reopen, in a rather hesitant fashion, with Calibre, a debut issuer and FirstMac, a perennial name, finalising terms yesterday for the sale of bond issues.

Adelaide Bank is also touting tight pricing on its first bond since the credit market crisis began nine weeks ago while Bank of Queensland has also begun marketing an issue. Bluestone is also marketing a New Zealand dollar issue, covering non-conforming loans.

The common theme to the four prime issues is the small value of each deal and highly seasoned and gentle credit quality of each loan pool. In the case of Bluestone the transaction at least reflects the issuer's underlying business.

FirstMac got relatively tight pricing on $250 million of securities, in the context of the current market, with a spread of 40 basis points over one month swap on the senior tranche, though one with a very short average life of one year.

Calibre paid 58 basis points over swap on the senior tranche on its $200 million securitisation, higher than management was looking for but unsurprising given it was the issuer's first such transaction.

Adelaide Bank is seeking to sell $350 million of RMBS and Bank of Queensland $200 million.

Bluestone is selling NZ$250 million of securities that, unlike the rest, include plenty of low doc loans and are not all that seasoned.  The Bluestone security is split into seven tranches.