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November 2, 2009

Past Issues

Column

Pay Limits and Financial Reform

Discussions and proposals on reining in the excesses of the financial system remain active. The last few weeks saw an announcement by the Federal Reserve targeting executive compensation as a component of its plans for financial reform, along with discussions about reducing the financial system's exposure to firms that are "too big to fail." While there is some logic underlying the various proposals, most of them skirt important fundamental issues. For example, the stated logic underlying proposed pay limits is that compensation agreements based on profitability created incentives for firms to take "excessive" risks. However, firms have been paying (and overpaying) their executives on this basis for decades. (I distinctly remember a Wall Street Journal article from the early 1990s that approvingly compared the pay of Bear Stearns' executive committee to the salaries of the NBA Champion Chicago Bulls' starting five.) What changed over the years was the steady deterioration of financial firms' management practices and their managers' inability to institute and maintain effective controls. At the time the Journal article was written, Bear's management had a reputation for meticulous risk management. This clearly began to break down well before the 2007 collapse of its hedge funds initiated the firm's collapse.

ABS

Six Months and Counting to New CLOs?

Ever since the credit drought set in, loan market participants have been wondering when a new CLO would fall from the sky. There have been a number of predictions regarding CLO activity over the past year or so, but only a few have actually materialized. However, now that conditions have improved, some market participants think a CLO storm cloud is just over the horizon, and they expect to see new CLOs in another six months or so. "I have heard that some underwriters are approaching the largest CLO managers about potential deals in 2010," a West Coast-based investor said. "It is not clear though if these are bankers trying to create something and then find buyers, or if they have demand from liability buyers."

Securitization Finds Life in an Insurance Industry Segment

Life settlement securitizations have picked up some renewed interest in recent weeks, and the sector is better placed than ever to live up to its volume potential. However, it still needs to get a few things in order for it to really take off. A life settlement is the sale of a life insurance policy to a third party. It's been referred to commonly as senior settlement, senior life settlement and also, with those involving the terminally ill, viatical settlement. It may also involve an owner selling his or her policy before maturity. A viatical settlement is for those who have a life expectancy of 24 months or less.

ABS: Still Viable, We Hope

Things were rosier at last week's ABS East gathering. For one, attendance was up 33% versus last year, according to Information Management Network figures. More importantly, the fighting spirit was back. In contrast to last year's downtrodden mood, attendees at this year's event - as Nora Colomer details in her cover story - were optimistic about securitization's place in the financial universe. A number of panelists defended securitization as a funding tool that's not only economical but irreplaceable.

MBS

East Side CRE on the Rocks

When Tishman Speyer Properties and BlackRock Realty acquired Stuyvesant Town-Peter Cooper Village on Manhattan's lower East Side for $5.4 billion three years ago, it was billed as a marquee property purchase. But a recent New York Court of Appeals ruling against the developers threatens to unravel the deal and further roil a fragile commercial real estate finance market. The properties were first opened in 1947 - many attracted GIs returning from the war - and they were borne of a state law designed to encourage slum clearance by private firms. The 11,000-unit complex, which was owned by an affiliate of MetLife, covered 80 acres and was popular with middle-income families. In the 1990s, 25,000 residents lived in the complex, according to published reports.

As Fed Winds Down, What's Next for MBS Supply and Spreads?

At the Federal Open Market Committee's meeting in late September, its statement indicated that it would slow the pace of its MBS buying, extend the purchases through the end of the 1Q10 and buy the entire $1.25 trillion. In the weeks prior to the adjustment, the Fed had been buying an average of $5 billion per day. It slowed the pace down to $4 billion per day in the three weeks following the statement, and in the last report for the period Oct. 15 through 21, the Fed's daily average dropped to $3.6 billion, or $18.1 billion for the week. To date through Oct. 21, the Fed has bought $959.1 billion. With about $291 billion left, this equates to a weekly average of $12.6 billion.

Realpoint Adds Competition in Rating Agency Space

The financial crisis of the last couple of years has brought to the fore the shortcomings of the major credit rating agencies. The failings of the big three have created space at the table for others, including the Horsham, Penn.-based Realpoint, a credit rating agency that rates CMBS.

Global

Colombian RMBS Stays A World Apart

Last year, RMBS issuance in major markets of the U.S. and Europe plunged due to either sickly collateral, skittish investors or a combination of both. Colombia, meanwhile, put out a record volume of Ps1.6 trillion ($834 million) in RMBS domestically. Activity this year has shown that the global crisis still has not seeped into this particular sector of activity, with issuance running at Ps1.4 trillion so far and expected to hit Ps1.7 trillion.

Aussie Mortgages Shrug Off Foreign Crisis

On October 7, the Reserve Bank of Australia bumped up the benchmark cash rate by 25 basis points to 3.25%, signaling a turnaround in policy since the monetary authority began cutting the rate in September 2008 from 7.25%. The move was the first interest rate hike by a major industrial power since the crisis erupted.

U.K. Servicers: Situation For Securitized Loans May Be Better Than Investors Think

U.K. loan servicers have never been more under scrutiny, given the current state of the economy and with increasing numbers of loan defaults and limited options for refinance. Although some structured finance investors might believe the current situation for loan servicing is overwhelmingly negative, servicers themselves claim that the picture is mixed. To address investors' increased interest in the role of servicers in this difficult market, Standard & Poor's Ratings Services recently hosted a conference featuring a servicer discussion panel. The event gave investors in CMBS and RMBS the opportunity to question servicers on the strategies they employ to manage securitized loan portfolios, including in critical functions such as collecting payments from borrowers and foreclosing properties when a borrower defaults.Depending on the effectiveness of such strategies, servicers can influence the number and severity of losses in the portfolio and hence the amount of cash the securitization vehicle can use to repay investors.

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.