First Union, Bear, Stearns Price Securities Offering Backed By Affordable Mortgages (1997)

First Union Bank (at the time; now Wachovia) ^ | October 20, 1997

[FreedomPoster]

Press Releases

Media Contact:   Mark Folk (704) 383-7088 October 20, 1997 First Union Capital Markets Corp., Bear, Stearns & Co. Price Securities Offering Backed By Affordable Mortgages Unique Transaction To Benefit Underserved Housing Market CHARLOTTE - First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. have priced a $384.6 million offering of securities backed by Community Reinvestment Act (CRA) loans - marking the industry's first public securitization of CRA loans. The affordable mortgages were originated or acquired by First Union Corporation and subsidiaries. Customers will experience no impact - they will continue to make payments to and be serviced by First Union Mortgage Corp. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977. "The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs. "First Union is committed to promoting home ownership in traditionally underserved markets through a comprehensive line of competitive and flexible affordable mortgage products. This transaction enables us to continue to aggressively serve those markets." The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied "AAA" rating. First Union Capital Markets Corp. is the investment banking subsidiary of First Union Corporation. "We are extremely pleased by how well this transaction was received by investors as many of the tranches were significantly oversubscribed," said Owen Williams, managing director of fixed income sales and trading at First Union Capital Markets Corp. "This offering is further proof of investors' b desire for a diverse range of collateral." Brian Simpson, managing director of First Union Corporation's Structured Products and Real Estate Group, said the transaction exemplifies First Union's effective use of asset securitization in managing its own balance sheet. Last July, First Union Capital Markets Corp. completed a $405.6 million securities offering backed by student loans originated by a First Union Corporation subsidiary. "Securitizing assets enables First Union to continue to grow its loan portfolio, while at the same time generate additional fee income," Simpson said. "We also have been very successful in providing innovative asset finance services to clients. We believe there is opportunity to expand our CRA loan securitization capabilities to other companies in the market." First Union has completed 20 asset-backed transactions for clients in 1997 totaling $4.3 billion, including a $268 million public offering backed by equipment leases for Heller Financial Inc. and a $67 million public offering for National Auto Finance Company secured by retail auto loans. First Union Capital Markets Corp. provides a full range of investment banking products and services, including asset-backed finance, public finance, syndicated loans, merger and acquisition advisory, private finance, equity underwriting and investment grade and high-yield debt finance. First Union has grown its capital markets business substantially over the last three years. First Union's Capital Markets Group reported 1997 fee income through Sept. 30 of $531 million, up from $464 million for the full year of 1996 and $265 million in 1995. First Union's community reinvestment activity averages $3.5 billion per year. First Union offers a broad range of financial products and services to low and moderate income communities, including affordable housing mortgages, home improvement loans, consumer loans, secured credit cards, small business loans, small farm loans, micro-lending and Low Income Housing Tax Credits. Charlotte-based First Union Corporation is the nation's sixth-largest bank holding company with assets of $144 billion as of Sept. 30, 1997. The company serves approximately 12 million customers throughout the East Coast and nation. -- END --

[FreedomPoster]

This is an interesting bit of economic history, given current events.

Again, this is the press release for "the industry's first public securitization of CRA loans."

Let that sink in for a minute.

Note all the CRA references. People would do well to understand the government's involvement in this financial event from the beginning, and the CRA is at the heart of it.

[Wuli]

So Bear, Stearns & Co. Inc. was the first to securitize a package of CRA debt, and it was the first to go under in the current “cisis”. Kinda poetic justice.

[IamConservative]

The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied "AAA" rating.

Therein lie the problem. Junk bonds got AAA rating because Freddie Mac was in the loop. Privatized profit, socialized risk. In reality, all the $700B bailout is is a trade of junk bonds for new AAA rated Treasury bonds. The $700B in new bonds is going to come from the same credit market that is supposedly frozen.

[Antoninus]

And First Union (aka, FU) merged into Wachovia which is now one of the big banks which is often mentioned as on the ropes.