CRE Specialist Is Planning to Expand into RMBS and ABS

A nationally recognized statistical rating organization with an alternative approach to the business and a specialty in commercial real estate is making plans to move into the residential mortgage-backed securities world.

Chief executive officer and president Rob Dobilas said Horsham, Pa.-based Realpoint LLC is looking at expanding into both RMBS and asset-backed securities this year.

He said the move, like many the company makes, is based on interest on the part of the institutional investors that constitute the company's main client base and subscribe to its information service.

Unlike the traditional NRSRO model, investors rather than issuers primarily pay Realpoint for its products/services. It does also offer issuer-paid ratings but these, too, differ from those that are provided through the traditional rating agency model. Mr. Dobilas describes them as ratings only issued on deals as they come out. Subsequent updates are available only to investor subscribers, he said, noting that this is aimed at mitigating the conflict of interest some see in offering issuer-paid ratings. Also due to the somewhat limited nature of Realpoint's issuer paid rating, the fees issuers pay for it tend to be relatively less than what they pay elsewhere, he confirmed. The company also rates 100% of deals in the market it covers, rather than simply what issuers hire it to rate.

"We're changing the way ratings are done," Mr. Dobilas said.

The company was originally part of GMAC Commercial Mortgage, so its focus on the CRE world has been natural.

Mr. Dobilas believes some of this expertise can translate into the RMBS world in part because he sees due diligence on the commercial side as having been traditionally more vigorous that in the residential arena.

While this may be a relative advantage for commercial mortgage-backed securities in some respects, residential MBS in general could still recover more quickly given where the two asset classes relatively are in the cycle, he said.

However there may be a need for more dramatic innovation in the RMBS market than in CMBS before new issuance can come back, he added.

"Some of the structures just didn't work when it comes to mass defaults in the pools," he said in regard to the former. The government's Term Asset-Backed Securities Lending Facility program has tried to introduce innovation to the latter, he added.

Already Realpoint has had some involvement with the new issue commercial mortgage-backed securities deals that have been trickling in.

In December, for example, it did a presale report on JPMorgan Chase Commercial Mortgage Securities Trust 2009-IWST, a non-TALF deal backed by borrowers directly or indirectly majority owned by Inland Western Retail Real Estate Trust Inc.

With much political hay being made out of the waves of downgrades traditional rating agencies have had to report on rated MBS of late and the scrutiny given to their issuer-paid business models, Mr. Dobilas feels, "There is something to be said for starting fresh."

Another development in this context that he sees as boding well for his company is a regulatory move slated for February that will allow all nationally recognized statistical rating organizations to get information on deals before they go to market, rather than only the ones issuers hire.

"It's a big change we've been pushing for, for a long time," he said.