Richard Barrent, president and coo of The Barrent Group, answers SCI's questions

Q: How and when did The Barrent Group become involved in the RMBS markets?
A: The Barrent Group began working on forensic mortgage loan reviews for clients in September 2008, looking to take action to recover losses on pools of loans that were purchased for residential mortgage-backed securities. Prior to that, our group was part of Wells Fargo. Last September we had 12 employees, but that has since risen to 20.

Q: Which market constituent is your main client base?
A: Our clients are, for the most part, monoline bond insurers or bond investors. We have also done some work with national banks on whole loans they purchased.

Our main focus is to re-underwrite and complete forensic reviews for mortgage loan files and also to help clients put back the loans to the responsible party. We analyse the details of the loans that have breaches of the representations and warranties within the securitisation, and then take it all the way through the process, so that the client can get the loans repurchased.

Thus far in 2009, our clients have benefited from our services by avoiding realised losses totalling US$52m. This loss avoidance was associated with 444 loans that were made whole by responsible parties through repurchase demands. Our website lists our historical loan review statistics.

We're also expanding our servicing reviews - not only are we looking at how the loans were originated, but also looking at how the loans were serviced once they were originated and pooled together. With high defaults and delinquencies, particularly in 2006- and 2007-originated loans, there may be instances where the servicer did not handle the loans according to their standards.

Q: What are your current strategies?
A: We launched the Bond Board and Reports service in July of this year. The idea of the service is for investors to find other common bond holders, so they can take action to get problematic loans reviewed. Normally, there is a 25% threshold required by servicing agreements for certificate holders to take action, so in many cases several bond holders will have to take collective action to get the loans reviewed.

The investor community has been very open to the concept, in that they can confidentially register and share the holdings that may be of interest, particularly if a bond is underperforming significantly. The service is free, but if, for example, the loans contain breaches, then we can then help the bond holders with repurchase obligations.

There's plenty of deal-specific information available on the web, but nothing that tells you who owns what. We see the Bond Board and Reports as a valuable tool - and the more investors that use it, the more useful the product becomes.

Investors are still at the stage where they are analysing loan pools and making decisions on which bonds they want to take action on, and looking at which ones would be most meaningful for getting a recovery.

Right now we have 238 securitisations on our Bond Board and Report, which represents 328 CUSIPS with a balance of US$9.6bn.

Q: Which challenges/opportunities does the current economic environment bring to your business, and how do you intend to manage them?
A: To some extent, the crisis has spurred our business on. There's a lot of need out there - and investors recognise that delinquencies keep rising, option ARM mortgages are re-setting and defaults are going up.

However, the turmoil experienced over the past year has had an effect on the business. Investors have wanted to take action, but there has been a lull, as investors waited to see what the government would do with initiatives such as TARP, TALF and the PPIP. There was also a lot of uncertainty over the nationalisation of banks.

Although the dust hasn't completely settled, it is calming down to a point where decisions can be made. A lot of 2006- and 2007-vintage loans potentially have high breaches, delinquencies and defaults. The economy isn't responsible for all those defaults - there were also things that were missed by the lenders.

Q: What major developments do you need/expect from the market in the coming year?
A: Our hope is the ABS market - in particular, the non-agency RMBS market - will come back. We would love the opportunity to be able to review loans at the front-end of transactions, where our clients may be purchasing or securitising loans. We could be the eyes for a rating agency, for example, and say if these loans are high quality/investment quality, as well as checking to assure there is no fraud or misrepresentation.

We do look forward to the securitisation market coming back, but when that will be remains questionable. Until there's more reform with the servicing agreements or the representation of warranties and until there's skin in the game for investment bankers or lenders, it's going to be a while before the asset class comes back.

AC