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June 5, 2009

Past Issues

Column

Assessing Credit Performance Trends

The recent headlines on residential mortgage credit performance have remained gloomy. The quarterly delinquency survey published by the Mortgage Bankers Association (MBA) painted a pretty desolate picture of mortgage credit performance in the first quarter of 2009, and data from outfits such as RealTrac show continued increases in foreclosures, particularly in the Foreclosures Started category. However, a closer look at recent data gives a somewhat different picture. Rising foreclosure rates probably represent both the elongated nature of the foreclosure process and the impact of the various moratoria that expired over the last few months, creating a pig-in-a-python effect. Moreover, other data suggest that mortgage performance appears to be bottoming out, led by the subprime sector, even though home prices remain soft.

ABS

The CLO Deep Discount Dilemma (Second of two parts)

This is the second of two parts of an article examining the dilemma confronting CLO mangers who wish to improve their portfolios by trading rapidly deteriorating loans for better-performing so-called 'deep discount' loans. This portion focuses on the industry's call for reform and suggests solutions to this problem.

Dare We Say Recovery?

ABS players are getting mixed signals. While consumer confidence appears to be coming back and homes sales are trending upwards, there's still a glut of homes and foreclosures keep edging higher.

Are Govt.-Sponsored Programs a Panacea for U.S. ABCP?

During the fall of 2008, circumstances surrounding the collapse of significant financial institutions and headline events such as the Reserve Fund's 'breaking the buck' prompted governments around the world to take action and ushered in the current theme of proactive sovereign intervention. As part of this initiative, various government-sponsored programs were introduced, including U.S. CP-related initiatives such as the ABCP Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), and the Straight-A Funding, LLC (Straight-A) programs. Though structurally different, the intention of the AMLF and the MMIFF is to backstop the purchase of certain short-term debt instruments, including CP, CDs and bank notes, thereby creating additional liquidity in the capital markets for them. The CPFF provides for the issuance of qualified CP to the Federal Reserve Bank of New York (FRBNY) through its primary dealers. Straight-A is a recently launched government-backed ABCP conduit established with the intention of fostering Family Federal Education Loan Program (FFELP) lending by purchasing notes backed by FFELP student loans and funding the purchase via the issuance of ABCP.

Assessing Analytic Uncertainties

Credit organizations, including Moody's, have been increasing measures aimed at diligently and continually evaluating the limitations of financial models and the assumptions and data behind them, especially with regard to structured securities. These steps can bolster the assessment of analytical uncertainties. In structured finance, the key areas of uncertainty that may lead to unexpected performance variability are:

Is a Housing Market Recovery in Sight?

As 2009 approaches the halfway hurdle, the consumer confidence outlook looks a bit more optimistic, home sales have picked up and rates remain low, fueling refinancing opportunities. This has raised speculation across the U.S. over whether a housing market recovery is in sight. But industry participants caution that the glut of supply continues to put downward pressure on home prices, especially in the areas hit hardest by the housing bubble, like California and the Southeast. This could delay recovery well into next year.

MBS

Prepayment Wave Turning into a Small Ripple

As the year got underway, expectations were for refinancing activity to surge as the Federal Reserve began its program to buy $750 billion worth of MBS with the aim to force mortgage rates lower. The Fed eventually increased the amount it would buy to a total of $1.25 trillion and added $300 billion Treasurys into the mix. The government also started its Making Home Affordable Plan in March to help borrowers who were underwater to be able to refinance their mortgages.

CMBS Inclusion in TALF Stabilizes Spreads

With the first round of the Federal Reserve's Term Asset-Backed Loan Facility (TALF) for CMBS set for the end of June, market players remain cautiously optimistic that the program could add some much-needed momentum to the sector. However, experts said that it won't serve as cure-all for the fundamental problems that the CMBS market faces. The expectation for 2009 is for modest CMBS issuance , with much of the activity spurred by this TALF expansion.

Long Proceedings Add to Losses in GGP's Chapter 11

The most recent bankruptcy court ruling on May 13 for General Growth Properties' (GGP) Chapter 11 filing have upheld the separate legal structure of U.S. CMBS loan special purpose entities (SPEs). However, the costs of defending the bondholders' positions will ultimately create higher losses on the subordinate bonds, said Fitch Ratings analysts.

Global

Securitization Loses Its Toxic Status on Regulatory Front

Regulators are shifting their view on securitization from being highly suspicious to realizing it is an integral part of the financial markets. Securitization industry players now see the importance of regulatory involvement to get the market back on track, said speakers at this year's European Securitization Forum/Information Management Network Global ABS conference. 'Unfortunately, most European politicians' first impressions of the securitization market were wrought by the crisis,' said Donald Ricketts, head of financial services and senior vice president at Fleisman-Hilliard. 'For Europe, securitization was perceived as the way by which the economy contracted the U.S. illness. Against this backdrop, politicians believe that if they purged themselves of securitization, the world would be a better place.'

Euro Market Ponders Ways to Survive

The crowded halls of the new and - many hoped - temporary home of this year's European Securitization Forum/Information Management Network Global ABS gathering held in London last week could serve as a testament to the still-strong interest in securitization. Market players said they felt encouraged by the hopeful buzz in the exhibit hall, some of the most positive chatter the market has heard in months.

Industry Pleads Its Case Despite Uncertain Future

The European Securitization Forum and Information Management Network chose a more somber setting - London - for this year's Global ABS gathering held last week. Market players took a sobering look at the current state of play of the securitization market. Conference panelists said that the market should expect stronger growth in the first half of 2010, although it's unlikely to be sustainable.

Silver Linings in LatAm

While ABS activity in Latin America is still slumping and the region lacks the aggressive repo programs of central banks in the U.S. and Western Europe, signs of hope are materializing. Scotiabank Peru, for instance, sent out a request for proposals to a number of banks active in the sector of diversified payment rights (DPRs). The bank would be following in the footsteps of three Peruvian peers: DPR veteran Banco de Credito del Peru (BCP), Banco Continental - which made its DPR debut only last year - and Banco Internacional del Peru (Interbank), which was due to price its second DPR deal on June 5.

ECB Shows Commitment to Covered Bonds

The announcement last month that the European Central Bank (ECB) is supporting the covered bond market with purchases worth E60 billion ($83.6 billion) has added further momentum to the covered bond market. It's still not clear which products will benefit from the purchases and by how much, but market participants said that the market has already begun to indirectly benefit from the more positive sentiment the forward-looking program has brought. 'The ECB stance has actually reopened the market by rebalancing clients' interests and providing a backstop bid for covered bond holders,' said Sebastien Gianfermi, head of SAS and covered bonds trading at BNP Paribas. 'This has brought back to the primary market several clients that were staying on the sideline and waiting for such a signal to reenter.'

Kazakhstan's Alliance Bank Might Go for DPR Grab

The CEO of Kazakhstan's Alliance Bank, Makshat Kabashev, said in a conference call on May 29 that the originator's three DPR bonds, totaling $275 million at issuance, could fall into the scope of any of the proposed restructurings of the ailing bank's debt. The determining factor will be Alliance's cash flow, he added, but did not elaborate, and press representatives did not return e-mails requesting further details.

ABS Totals

ABS Totals

View the year-to-date ABS issuance totals for ABS, MBS and CMBS.

ABS Manager Rankings

ABS Manager Rankings

View the year-to-date manager rankings for the different ABS sectors, including real estate, credit cards and autos.

Scorecards

Scorecards

View the Scorecard deals featured in ASR's Scorecard database.

Mortgage Refi Data

Mortgage Refi Data

See results from the Mortgage Banker's Associations Refinance and Purchase Indexes as well as the weekly mortgage rates surveyed by Freddie Mac.