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Rating agencies want back-up on RMBS

Third-party mortgage servicers say rating agencies are beginning to insist there must be back-up arrangements to service mortgage-backed securitisations if the primary issuer is unable to do so.

They also believe rating agencies are getting stricter even where there are back-up agreements in place.

Crown Mortgage Management group chief executive officer Eric Stoclet says: “I think what the rating agencies are saying, given the uncertainties in the market, is we need to have a back-up plan. In particular, they are not accepting cold back-up servicing arrangements anymore. Where securitisations have a cold back-up servicing arrangement, they are threatening to downgrade the bond if it is not upgraded to at least a warm back-up servicing arrangement.”

In both hot and cold servicing agreements, the back-up servicer will step in and manage the RMBS if the primary servicer is unable to do so. But in hot servicing agreements, the back-up servicer has the benefit of having detailed performance information about the bond, before it replaces the primary servicer, from being regularly informed about the performance of the RMBS.

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