Some issuers of jumbo mortgage-backed securities consistently produce riskier pools of loans than others, according to a report by Moody's Investors Service.

"Credit quality varies significantly among the jumbo mortgage pools securitized by the major MBS issuers," the report said, listing PNC Mortgage Securities, Residential Funding Corp., Citicorp Mortgage, First Union Mortgage Loan Conduit, and ABN Amro among the issuers of riskier pools of loans.

To get ratings on securities pools, issuers arrange credit enhancements, which are cushions to protect investors from risk. One credit enhancement technique is over-collateralization-in which the dollar value of the securities issued is less than the value of the loans in the pool. Other techniques include letters of credit and senior-subordinated structures, in which high-yield investors buy the unrated portion of the loan pool.

The report said baseline Aaa credit-enhancement levels for 30-year, fixed-rate, jumbo mortgage loans range from 4% to 5.5% for the major MBS issuers. Issuers with the riskiest jumbo pools require about one-third more protection to attain Aaa ratings than issuers with the least-risky pools, Moody's said.

Riskier mortgage loans require more enhancement, and Moody's assigns ratings depending on how much credit enhancement the issuer needs against how much it provides.

Lower-risk issuers, with baseline credit enhancement levels of 4%, include Bank of America, Cendant Mortgage Corp., Countrywide Home Loans, and Norwest Mortgage.

Moody's said pools backed by tightly underwritten retail originated loans have better performance records.

It found that bulk purchases and trusting another company to ensure that loans meet underwriting guidelines, rather than personally overseeing the process, lead to more performance variability.

The report also said the effect of broker originations depends on the interaction between the company and the brokers.

For each mortgage product, major mortgage-backed securities issuers are assigned a baseline Aaa credit enhancement level for their typical loan pools. The baseline level reflects historical performance of the company's originations, its business practices, and characteristics of its typical pool of loans.

The 4% mark is not necessarily an indication that these companies offer better products than others, cautioned Mark H. Adelson, managing director at Moody's in New York. "It may even be a more profitable strategy for some companies not to try to minimize credit risk down to the lowest levels possible," he said.

Though there can be significant differences in the quality of pools from a single company, there are even more pronounced quality distinctions among pools from different companies, the report said.

Differences in credit quality also translate into differences in the levels of credit enhancement needed for securitizations to secure Aaa ratings, Moody's said.

The Moody's report also has implications for investors in mortgage- backed securities.

Mr. Adelson said the report can help provide pricing information for investors and that from a credit standpoint, it helps to debunk the misconception that all mortgage pools are generic. Differences do exist among mortgage pools, he said, and the origins of these pools are important.

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