UPDATE 1-BlackRock fund to finance, securitize US mortgages

(Adds details, background)

By Al Yoon

NEW YORK, Nov 4 (BestGrowthStock) – A BlackRock Inc (BLK.N: ) fund
this month will begin financing U.S. home loans customized for
a new breed of residential mortgage-backed securities that
avoids the conflicts tainting many of today’s private issues.

The $1 billion BlackRock Mortgage Investors Fund will
provide capital for prime “jumbo” loans through lenders under
strict underwriting guidelines, said Randy Robertson, a
managing director and co-head of securitized products.

The loans will be earmarked for bonds akin to Wall Street’s
private-label RMBS that provided the majority of credit at the
peak of the housing boom. But BlackRock says it is addressing
the weaknesses of the old model that have frustrated investors,
including sloppy loan documentation and potential conflicts
when the same bank is originator and servicer.

“We’re really designing this to alleviate many of those
concerns,” Robertson said. “We hope to achieve the bellwether
non-agency prime securities, ultimately.”

It’s a new twist by a the world’s largest money manager,
which created the BMI fund to purchase distressed mortgage
assets. The fund, part of BlackRock’s $3.5 trillion under
management, expects initially to support $100 million to $250
million a quarter as the housing slump and economy limit
greater demand, Robertson said.

BlackRock and other investors for the past year have
complained that their positions in RMBS have been treated
unfairly as servicing companies have modified loans. Many
servicers are units of banks that hold more than $400 billion
in second-lien mortgages, and in lowering interest rates on the
main mortgage, they have left the junior debt untouched.

First investors are perversely at “the back of the
collection line,” BlackRock Vice Chairman Barbara Novick wrote
in an op-ed piece last month.

Investors at BlackRock and elsewhere have said unfair
treatment of mortgage investors has been a factor in the lack
of private capital entering the U.S. housing market, which is
foundering in part due to lack of credit. Only one mortgage
bond backed by new loans has been sold since the $1.5 trillion
private-label market came to a screeching halt in 2008.

The government-supported market of Fannie Mae, Freddie Mac
and Ginnie Mae “agency” mortgage bonds finances 90 percent of
all U.S. home loans. But lawmakers and regulators hope to
reduce the costly role of government in housing as they begin
to overhaul the nation’s mortgage finance system in 2011.

Instead of relying on others for creating sound mortgage
assets, BlackRock is setting aside the traditional money
manager role and is setting its own rules.

Among them, loans will be handed to a separate servicing
firm to ensure independence when recording payments and working
with borrowers. Originators cannot induce servicers to initiate
fee-producing loan refinancings, which hurts investors if
principal is returned at below-market levels.

Specialized investors, including PennyMac Mortgage
Investment Trust, have also been developing so-called conduits
for aggregating jumbo mortgages. But securitization of the
loans has been next to nil as bank loan rates have been too low
to ensure profits for issuers, analysts say.

BlackRock can easily vary its funding based on demand and
profitability, Robertson said. Growth potential rises as
economic growth picks up and it appears the bottom in housing
is closer, he said.

Currently, jumbo lending is constrained as many borrowers
do not qualify and lenders are wary of expensive properties
when forecasts call for further price depreciation. Lenders
must securitize or hold in portfolio loans with balances above
a temporary cap of $729,750 on government-backed loans.

Once BlackRock reaches scale, it will decide on a public
securitization or possibly create “participation certificates”
with loans carved up for sale, Robertson said.

“It can take the form of a traditional securitization,” he
said. “But the challenges of a public securitization and
regulatory hurdles have been well-publicized. That will evolve,
and we’ll evolve as it evolves.”
(Editing by Dan Grebler)

UPDATE 1-BlackRock fund to finance, securitize US mortgages