Pooled commercial mortgage transactions

There are two basic forms of pooled commercial mortgage transactions the true sale and the synthetic structures. The true sale mechanism, as its name suggests, involves the sale of assets from the originator s balance sheet to an SPV, which are then used as security for the issue of notes to investors. Synthetic structures, by contrast, involve the creation of a credit derivative linked to the performance of a pool of loans. The loans themselves remain on the balance sheet of the originator but the credit risks associated with these loans are transferred through the credit derivative to investors. Synthetic structures can simplify the issuance process and avoid many of the complexities (and costs) associated with the sale of assets in many jurisdictions. 

Double credit risk is a particular feature of such synthetic transaction structures. Not only are investors exposed to the performance of the reference pool of commercial mortgages, but also to the performance of the collateral the issuer is holding. If this includes notes issued by the originator itself then this will also include exposure to the credit rating of the originator. 

ACE Securities series 2004 is a sub-prime RMBS transaction that closed in the U.S. market in January 2004. It is a securitization of a pool of sub-prime mortgages originally on the balance sheet of Fremont Investment and Loan. Fremont is a commercial banking institution that had been engaged in sub-prime mortgage lending for more than ten years prior to the transaction, and also originated previous home equity securitization deals. 

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