OREANDA-NEWS. June 17, 2015. The inclusion of a Transaction Manager (TM) in new U.S. RMBS transactions would likely benefit investors in higher loan default scenarios, according to Fitch Ratings.

In particular, TM's would provide greater servicer accountability in new RMBS through servicer oversight and more transparent investor reporting.

In an effectively designed framework, the TM would bear responsibility for coordinating with all transaction parties, including servicers, trustees, custodians, specialty vendors, and investors. Importantly, the TM would have the ability to replace underperforming servicers, which would heighten servicer accountability and mitigate losses on distressed loans. Additional TM responsibilities would include servicer and vendor oversight, investor reporting, enforcement of transaction governing agreements, resolution of breaches of representations and warranties, and credit risk management.

The TM's main value is in minimizing losses on distressed loans. As such, Fitch believes that a TM will have a greater impact in RMBS transactions that experience higher loan defaults, either due to riskier loan attributes or stressful economic environments. For high credit pools in a benign economic environment, it is unclear whether the benefit of a TM would outweigh the compensation cost.

The TM compensation agreement will be important in determining the net benefit of the TM role. In an effectively designed arrangement, Fitch would expect the fee structure to properly align the incentives of the TM with that of investors throughout the capital structure. The compensation arrangement might include both initial and ongoing fees designed to effectively motivate the TM in a broad range of mortgage pool default scenarios.

Fitch expects to conduct operational reviews of TM's to assess core competencies. These include management and staff experience, effective use of technology, ability to maintain strong relationships with transaction parties as well as the ability to monitor and enhance performance at the loan and pool level. The financial stability of the TM will also be considered in the operational review process.

Transactions that contain TM's with favorable operational assessments and well-designed responsibilities may potentially warrant modestly lower credit enhancement requirements. Fitch's views of the TM, their responsibilities and compensation structure within the subject transaction, and the benefits of their participation will be included in RMBS presale reports and other transaction commentary.