Top 250 2005 - Ameriquest grows with profile
Ameriquest Mortgage's growth on the Street has clearly been in the spirit of its high-profile advertising campaign in the United States. In 2000 it brought US$1.5bn to the securitisation market. Last year it sold approximately US$51bn, coming in only slightly behind home equity leader Countrywide. By Chris DeReza.
The verdict is out as to how much the company might issue this year. A company source said it expects the same volume as 2004, but an independent analyst felt that if mortgage rates remain low and home appreciation high, this assessment could be lowball. The corporate profile is evidently being hugely boosted by its sponsorship of the Super Bowl in February, that included an aerial blimp and its name affiliated with the overall promotion of the game.
Nearly all of the issuance that ends up in investors’ hands will come from its three shelves; the Ameriquest Mortgage Securities Inc. (AMSI) originated retail Ameriquest product with loans serviced by its servicing platform; the Argent Securities Inc. (ARSI) originated wholesale product serviced under the Ameriquest servicing platform; and Park Place Securities Inc. (PPSI) shelf, product originated by the wholesale Argent and serviced by top tier servicers such as Countrywide, Wachovia, Litton Loan Servicing and Wells Fargo.
In addition to the three high-profile routes to the securitisation market, the firm also sells to portfolio buyers and Wall Street firms via the whole loan market. Most loans are being sold to portfolio buyers, traditionally banks. Loans sold to the Street are ending up on the shelves of the respective banks such as Morgan Stanley’s MSAC series.
The key to Ameriquest's issuing success been its ability to diversify its product mix, pinpointed one mid-sized investor, adding that the borrower has been adept in enabling accounts to meet their allocations.
At no time was this innovation more obvious than in the middle of 2004, when some investors perceived the product as risky because of its astronomical growth and servicing portfolio. Ameriquest shifted its strategy, and started offering bonds wrapped by different monolines – in some cases to meet investor demand, and in one case used the distribution of three underwriters to place a US$60m net interest margin transaction.
Investors were clearly wary over worries generated by servicing platforms growing too fast, as seen with Fairbanks Capital in 2002 and 2003. In the case of Fairbanks, its operations slipped as it acquired more servicing rights than it could handle. The lapse, in addition to investigations by state attorney generals and several federal agencies, caused the rating agencies to decline a rating on deals that had Fairbanks as a primary servicer.
But shortly after this period of hesitation, CSFB executed the first PPSI transaction, alleviating investors’ fears by diversifying servicing. The deal, priced July 14, 2004, was largely driven by reverse inquiry. As the PPSI deals progressed through the summer and marketing on the shelf became more robust, spreads quickly tightened up to levels indicative of the greater market.
The shelf has seen good success and alleviated stress on the AMSI and ARSI shelves, allowing them to moderate their volume to stay in line with investor demand. On June 9, the US$389m AMSI 2005-R5 transaction saw the US$66.1m one-year price at Libor plus 8bp, in line with top issuers, during a week of very heavy volume.
The product also routinely performs well down the structure, where the current strong CDO bid has provided an additional and important source of liquidity for both investment-grade and below investment-grade bonds.
“Our loans perform favourably relative to industry standards,” said Adam Bass, a senior member of management at the firm. “There are several reasons for this; we hire 90-days in advance of forecasted volume, our employees undergo extensive training, so when loans are on-boarded, our employees are well prepared to service them.”
Its servicing platform is rated by all three rating agencies. S&P has given the firm “Strong,” its top servicer rating, Moody’s has given it SQ2 – an above average rating – and Fitch has given the firm a RPS2+ for residential servicing for subprime product, and RSS2+ for its special servicing rating.
Prospects for origination remain strong. The firm continues a strong advertising campaign into areas where potential new borrowers have been identified, and has institutional procedures in place to insure that its customers understand servicing. For example, it places calls to all new borrowers prior to their first payment to review their loan terms, payment due date payment options and contact information.