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September 7, 2009

Past Issues

Column

The Uncertain Futureof Non-Agency Lending

The recent contraction in the spread between Jumbo- and conforming-balance mortgage loans has obscured continued problems in the market for non-agency loans. The lack of a securities market outlet for loan production means that virtually all loans ineligible for agency execution must be held in portfolio by the lender. In addition to requiring LTVs of 75% or lower, the pricing of non-agency loans is dependent on each lender's balance sheet and capital position, along with their appetite for credit and interest rate risk. Ultimately, the banking system's collective balance sheet is not large or strong enough to support the upper tier of the housing market on its own. In this light, a key question for the housing markets (especially in high-cost states such as California) is how soon the new-issue private-label market will recover and provide economical execution for prime jumbo-balance originations.

ABS

Structured Finance Likely Savior for Municipals

Some U.S. states and cities have reportedly considered securitizations as a possible funding solution for budget shortfalls. For instance, the state of California is looking to borrow from cities and use securitization as a means to cover the funding shortage that the state anticipates will be a result of the Proposition 1A arrangement.

Market Redefines GSE Role

With the GSEs solely supporting most of the MBS market, Fannie Mae's and Freddie Mac's future takes on added significance in saving the mortgage market from a total collapse. However, despite the apparent reliance on these institutions, the virtue of GSE reform has still been highly debated in the market.

GSEs Break with FHFA on Review Rule

Fannie Mae and Freddie Mac are seeking significant revisions to a regulatory rule that forces them to submit all new products and activities for review, arguing it is too restrictive and goes against congressional intent. In a rare joint comment letter sent this week to the Federal Housing Finance Agency (FHFA), the two government-sponsored enterprises objected to several parts of the July 2 interim rule, saying it was unnecessarily burdensome and ineffective, and could make it difficult for the GSEs to help during a crisis.

With or Without Uncle Sam

The ABS market has seen a flurry of transactions over the summer - a departure from the season's historical doldrums. We can thank TALF for that, even if there were a few deals issued outside the program.

MBS

Will Fed's MBS Buying Slow?

While some days in August lived up to its 'dog days of summer' moniker, the stats suggested anything but. The month reported several stronger-than-expected key economic releases beginning with the July employment report that showed a loss of just 247,000 jobs compared with a projected loss of 320,000, with the unemployment rate slipping to 9.4% from 9.5%, and concluding with a better-than-expected Chicago PMI for August at 50 versus a consensus call of 48, and up from 43.4 in July. The housing reports were also encouraging with July new home sales, jumping 9.6% with months' supply dropping to 7.5 months from 8.5 months in June, while July existing home sales rose 7.2% on a seasonally adjusted basis. Home sales were helped by historic affordability levels and the $8,000 first-time home buyer tax credit. Second-quarter home price data reported a slowing in home price declines. According to the Federal Housing Finance Agency's (FHFA) House Price Index, home prices declined 6.1% in the second quarter from a year ago compared to negative 7.1% in the first quarter, and Standard & Poor's/Case-Shiller recorded an annualized price decline of 14.9% in their National Home Price Index for the second quarter compared with negative 19.1% in first quarter.

Global

Dog Days of Summer Reveal a Muggy Forecast for Euro ABS

The summer months have brought a more positive sentiment to the European securitization market. However, market sources believe that the winter could bring some discontent, adding that Europe has yet to make some lasting moves that would indicate the market's true revival. Corporate high-yield and leveraged loans have taken a strong rally over the last month, and ABS has rallied along with these sectors. Market sources said they expect continued tightening in most European ABS sectors, although the price rally has come with no real new securitization issuance to speak of.

Metrofinanciera ABS Investors Still Face Missing Funds

Mexico's Metrofinanciera filed for a prepackaged bankruptcy with a court in Monterrey, Mexico, in mid-August and is waiting for approval. The originator has stopped making payment on a range of obligations. Where the bridge loan ABS investors fit into the restructuring remains unclear and is further complicated by the fact that there was never a rectification of the company's systematic diversion of funds away from the ABS trusts during 2007 and 2008.

Russian RMBS: Holding Up but Growing Nowhere

The Russian bear still has an unmistakable limp. A fragile economy, spooked consumers and the absence of foreign investors are undermining the return of RMBS, but, given the brutal conditions, the performance of deals has held up relatively well. Facing its most severe recession since the catastrophic financial crisis of 1998, the country saw its economy shrivel annually by 10.9% in 2Q09, the steepest drop on record.

Loan Mods U.K. Style: An Industry VeteranShows How the Game Is Played

Loan modifications aren't just important to the revival of the U.S. mortgage market. The U.K. too recognizes the importance of keeping borrowers in their homes and has devised several initiatives to push loan modifications through, although with less success. 'The U.K. isn't thinking about loan modifications on the same level because it doesn't have to,' Culhane said. 'Part of the problem behind why more servicers just don't take the initiative and start doing loan mods is the lack of protection for servicers, which leaves these companies vulnerable to a bondholder backlash, especially in the case of loans that have been packaged in securitizations.'

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.