RICHARD CAREAGA_

Return to Securitization

An unexpected call from my former securitization client led me to go in-house with PNC Mortgage in Chicago. The business needed a smoother deal flow that was more efficient and cost effective. I took care of that through master agreements to purchase loan pools to securitize that could be incorporated into term sheets. What had formerly taken outside counsel and $5,000 to do in a week now took a clerk an hour to document.

Then Washington Mutual bought PNC Mortgage and it was off to Seattle with a titular upgrade from Second Vice President to Vice President, becoming Senior Vice President/Associate General Counsel five years later. It also involved an expansion beyond securitization work to treasury operations, corporate finance, SEC reporting and most other transactional work that came along aside from procurement. When the lawyer with the securitization program when over to the business side, I handed off treasury to a new hire and trained another new hire to keep the securitization program ticking under my supervision. I took over the broker dealer business but continued to be involved in matters such as implementation of Sarbanes Oxley. In April 2005, the Securities and Exchange Commission announced two proposed rulemakings. One would codify the many informal arrangements that had developed over the course of 15 years for asset backed securities, which had never fit well into the traditional framework for IPOs. The other liberalized pre-sale offering rules in ways that also impacted securitization. For the remainder of the year, that is how I spent most of the time. I became deputy chair of the American Securitization Forum’s committee on the effects on underwriters and retained outside counsel to redraft our disclosure documents under a pilot program of the SEC to comment on the form of new disclosures. There was also a major business process redesign to advise. On January 3, 2006, Washington Mutual’s $100 billion securitization registration statement was declared effective, the first issuer out of the gate. This was followed by another $400 billion the following year, and for both of those it was my name on the cover. We issued 90 deals under those offering documents.

In January 2007, I became involved in a root cause analysis of disappointing loan performance in the previous year’s subprime deals. That led me to get immediately involved with the loan-level tapes of the deal. I created a database of 125,000 records with 50 fields and began a forensic analysis. In the end, I could find no useful predictive indicators aside from the margin over index on these adjustable-rate loans. This ran counter to the received wisdom that the loans were, as a whole, poorly underwritten.

Instead, the real estate bubble was defalting. Borrowers who experienced life events such as loss of employment or divorce were no longer able to sell or refinance their way out of foreclosure because loans were underwater.

By July, the securitization business imploded also, and I turned attention to how borrowers whose adjustable-rate loans were resetting from the teaser rate to the fully index rate would be affected. My database paid immediate dividends because it made me the only person who had the count and balance of loans coming up each month at this fingertips. I also got involved with industry initiatives to help borrowers restructure loans.

By December 2007, Washington Mutual had settled into the decline from which it never recovered, and when the FDIC seized the bank in August 2008 the reaction in the building was mainly one of relief. JPMorgan Chase acquired the assets, and I helped in transition matters for the next six months. JPM decided that a senior attorney wasn’t really needed for a business segment in wind-down mode and let me go. Frankly, I would have done the same.

This phase of my career was my experience with public company high-pressure, high-stakes work of a range and diversity (from consumer loan disclosures to commercial paper) that only my previous experience could have prepared me for. Despite the sudden end, I felt that I had reached a career peak, and proud of my part.