From the "we haven't learned our lesson" file:
Banks are turning to so-called re-REMICs for commercial mortgage debt to create securities that offer protection from rating cuts and losses. Investors are buying commercial mortgage bonds that may be repackaged into securities similar to re-REMIC deals being sold by Bank of America (BAC) and Morgan Stanley (MS), assuming they will be able to sell them at a higher price, according to Chris Sullivan, chief investment officer at Federal Credit Union in New York.
“Investors are getting ahead of the banks that are beginning to package these deals,” Sullivan said in a telephone interview. “There will be more of these deals going forward, so it makes sense to pick up the bonds now.” A re-REMIC can be used to create top-graded debt from securities that have had ratings cuts. Standard & Poor’s said May 26 that it may lower the rankings on as much as 90 percent of the highest-graded commercial mortgage-backed bonds sold in 2007. A record $237 billion of the debt was sold that year, according to JPMorgan Chase & Co. data.
The feedback BoneYard has been getting is that this could be a tough sell. TALF eligibility is questionable, you still have to lay off the lower tranche and structured buyers are still plugging gaping holes in their portfolios.