If it ain't prime, it's subprime

A trend in the US over the past couple of years has involved securitization issuers doing everything possible to avoid using the term subprime. Such verbal chicanery does their market no favours.

  • By Sam Kerr
  • 15 Jun 2017
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While it is understandable that sellers of ABS like to avoid association with the bad old days of the subprime mortgage crisis, it doesn’t change the fact that the market still divides ABS paper into prime and subprime categories.

So it does nothing for the asset class when the label "near prime" appears on a deal, as happened on one US consumer ABS issue this week.

The deal is backed by loans with a FICO score between 600 and 650, typically characterised by investors as subprime.

Mortgage lenders are no less guilty, with several issuers jumping through hoops to avoid the dreaded subprime tag, with the term “non-prime” being used instead.

Lenders also use the term "non-QM" in the mortgage sector for borrowers who cannot get a qualified mortgage designation. There are a variety of reasons for this but more often than not it is because of borrower history or FICO score.

How are investors looking at ABS and RMBS deals to differentiate between non-prime, non-QM and near-prime, especially when the lender in question designates any loan under 660 non-prime?

Issuers and rating agencies, which also use these new labels, insist that it is to differentiate from subprime collateral of the past.

However, the performance of the collateral and the underwriting standards under which it was originated should be that differentiator.

Uniformity in securitization is vital and the market can’t come up with a market standard with regard to prime and subprime lending, then there is little use in having these terms at all.

  • By Sam Kerr
  • 15 Jun 2017

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 1,712.34 6 12.44%
2 SG Corporate & Investment Banking 1,292.64 1 9.39%
2 Rabobank 1,292.64 1 9.39%
4 Mizuho 1,215.54 3 8.83%
5 Wells Fargo Securities 1,012.71 4 7.36%