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Story of a Security -- CMLTI 2006-NC2

Story of a Security -- CMLTI 2006-NC2

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Published by the_akiniti
As a data project, the FCIC detailed the creation of a mortgage-backed security, Citibank's CMLTI 2006-NC2.
As a data project, the FCIC detailed the creation of a mortgage-backed security, Citibank's CMLTI 2006-NC2.

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Published by: the_akiniti on Oct 19, 2011
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Media Advisories(/resource/media_advisories) Archive (/resource/document-archive)Staff Data Projects(/resource/staff-data-projects)
Story of a Security(/resource/staff-data-projects/story-of-a-security)CDO Library (/resource/staff-data-projects/cdo-Library)CDO Charts (/resource/staff-data-projects/cdo-charts)Hedge Fund Survey(/resource/staff-data-projects/hedge-fund-survey)Market Risk Survey(/resource/staff-data-projects/market-risk-survey)
Interviews (/resource/interviews)Graphics (/resource/graphics)Glossary (/resource/glossary)Reports & Fact Sheets(/resource/reports)
On June 9, 2006, Citigroup agreed to purchase approximately $1 billionin loans from New Century. The characteristics of the loans to bepurchased were spelled out at that time, as was the price: Citi wouldpay $102.55 for every $100 in mortgage balance. The trade ticket and“stip” (stipulation) sheet summarize the details of the deal and the poolthat would be created.
Commitment letter (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-06-09_CMLTI_2006-NC2_01R _ Citi CommitmentLetter.pdf)
THE STORY OF A MORTGAGE SECURITY: INSIDE CMLTI 2006-NC2
About This Data (#data)Download Data (http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/0000-00-00_CMLTI 2006-NC2 Loan-LevelPanel Data.xlsx)The 32 megabyte Excel data file contains the raw data from these 4,499 loans, including the information about theloans and the borrowers. The performance of all of the loans is also included. Primary data provided by BlackBoxLogic Inc.; broker compensation data provided by IP Recovery Inc. Certain fields were altered to preserve the privacyof individual borrowers.
BEFORE THE CRISIS
National September 2006
Avg Initial Loan Balance
$210,580
Avg FICO Score
620
Avg Debt-to-Income Ratio
40.6
Avg Initial Interest Rate
8.64%
Most Frequent Product
2/28 ARMwith 40 year amortization
Note: Delinquent category includes loans 30, 60, or 90 days behind or those in bankruptcy or foreclosure.Homes Lost category includes liquidated and bank “real estate owned” properties.
Source: FCIC research
National (#national)Arizona (#arizona)California (#california)Florida (#florida)Nevada (#nevada)
 About the FCIC at SLS (/about)The Report (/report)Hearings & Testimony (/hearings)Resource Library (/resource
 
Trade ticket (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-06-09_CMLTI_2006-NC2_02R _ Trade Ticket.pdf)Stip sheet (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-06-22_CMLTI_2006-NC2_03R _ Stip sheet.pdf)
The deal would involve two pools of loans – one that conformed to theGSE limits and one that did not. On July 20, New Century sent Citi adescription of the loans in the first pool. A week later they sent adescription of the two pools combined.
First tape delivery (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-07-20_CMLTI_2006-NC2_04R _ First tapedelivery.pdf)Second tape delivery (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-07-20_CMLTI_2006-NC2_04R_ Second tapedelivery.pdf)
Through late July and August, one or two at a time, loans were pulledfrom the pool for legal issues, because they had been sold into otherpools, or for other reasons.
Emails regarding the deal
Email: July 31, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/Email: August 24,2006.pdf)Email: July 31, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-07-31_CMLTI_2006-NC2_05R _ loan issues0731b.pdf)Email: August 3, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-03_CMLTI_2006-NC2_05R _ loan issues 0803.pdf)Email: August 9, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-09_CMLTI_2006-NC2_05R _ loan issues 0809.pdf)Email: August 21, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-21_CMLTI_2006-NC2_05R _ loan issues 0821.pdf)Email: August 24, 2006 (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-24_CMLTI_2006-NC2_05R _ loan issues 0824.pdf)
Due diligence for this deal was performed by 406 Partners, LLC. Thereview was to take place at New Century between 7/31 and 8/11. 406Partners sent New Century the list of loans they wanted to review – asper the initial sale agreement, 25% of the loans would be sampled forcredit review. In the end, more than 200 loans were removed from thepool.
Email from 406 to New Century(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-07-26_CMLTI_2006-NC2_06R _ due diligencestart.pdf)Results of the review: Accept
 
(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-00-00_CMLTI_2006-NC2_07R_due diligenceaccept.pdf)Results of the review: Reject(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-00-00_CMLTI_2006-NC2_07R_due diligencerejects.pdf)
As the loan purchase was closing on August 29th, New Century sent afinal list of the 4,521 loans they were selling. Citi personnel sawviolations of the initial agreement: 14 NINA loans (no income, no assets)and too few loans with prepayment penalties. They forced New Centuryto keep the 14 NINA loans and bargained the price down to account forthe other problems.
Emails detailing the problems(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-08-29_CMLTI_2006-NC2_08R _ final pool issues.pdf)Final trade summary showing4,507 loans (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_09R _ trade summary.pdf)
With the loans settled, $978.6 million had to be moved from Citigroup toNew Century. These loans were funded by a series of warehouse lineswith individual loans serving as the collateral. New Century sent Citi thewire instructions; Citi sent the money, and the individual lenders releasedthe loans as they were paid back.
Wire instructions (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_10R _ Wire instructions.pdf)Tracking email from Citi to NewCentury (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_11R_ Wire confirms.pdf)Release letters (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_12R _ Mortgagereleases.pdf)
Citi then began to market the various tranches of this mortgage-backedsecurity
Prospectus (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-12_CMLTI_2006-NC2_13R _ Prospectus.pdf)Fannie Mae term sheet (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-07_CMLTI_2006-NC2_14R _ Fannie TermSheet.pdf)
To sell the bonds, Citi needed the rating agencies to rate them. OnSeptember 11, S&P ran its model and confirmed the ratings of theindividual tranches. When the deal was priced on September 12, theinterest rates on some of the bonds were slightly different than thoseS&P had originally modeled. The final models were run on September 26as the deal was closing. S&P sent the final ratings letter to Citi. Forrating this deal, S&P earned $135,000. (A second agency, Moody’s,earned $208,000.)
Moody’s invoice (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-10-12_CMLTI_2006-NC2_15R _ Moody's invoice.pdf)S&P Invoice (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-27_CMLTI_2006-NC2_15bR _ S& P invoice.pdf)

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