Murrayhill Expands Business Model to Touch Whole Deals

The Murrayhill Co., Denver, made a name for itself by helping investors manage risk on the bottom pieces of mortgage-backed securities transactions.

Now, the company has expanded its niche by offering its services to Wall Street securities firms when they issue a mortgage-backed bond. These bonds are typically bought by large investors such as insurance companies and pension funds.

As a result, Murrayhill is hired by the company that issues a bond as a party to the entire security - not just the riskiest tranches.

Since investors are more risk conscious in a slow economy, Murrayhill believes its business model is somewhat countercyclical.

The change has fueled growth for Murrayhill, which employed eight people as recently as two years ago. Today, the firm has 50 employees.

Murrayhill's primary job is to monitor the servicer of the loans, with particular attention to managing the loans that go into default. Murrayhill then gives the investor information to help the investor analyze the performance of the bonds and of the servicer.

The company's role is to fill an information gap between the servicer, who has no financial risk in the outcome of a foreclosure or loan default, and the investor, who bears the risk.

The company claims it is involved in 6% of the residential private label MBS market and 16% of the residential subprime MBS market.

Ann Gibbons, a managing director at Murrayhill, says the firm's expertise is still credit risk management, but it is taking a wider approach to include issues such as cash flows, reconciliation, prepayment premium analysis and other aspects of the entire deal.

"We are more of a consultant to the transaction. We monitor servicers, but we also monitor any party to the transaction."

The company works closely with servicers, she said, because Murrayhill's clients don't just want to know what isn't working. They want problems to be resolved.

Ms. Gibbons sees a couple of trends affecting loan servicing. Some lenders are developing expertise in alternative loan products. And many are also outsourcing more functions than in the past.

"I think everyone is becoming a little bit more specialized," she told MSN during the recent MBA national mortgage servicing conference.

But she is skeptical about deals having a separate entity assigned to handle "special servicing." Especially in the subprime residential sector, transferring problem loans to another lender may not be a good idea, she said. That introduces risks associated with loan transfers at a time when a loan is already delinquent, she noted. And the transfer itself may cause delays in resolving the loan.

Because Murrayhill stays with the transaction for its duration, it is not just taking a snapshot at a given point of time, but is in a position to see developing trends and issues on a deal.

And the company is not done expanding. Currently, Murrayhill is trying to take its approach to other sectors of the ABS market where third-party monitoring may add value, Ms. Gibbons said.

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