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January 04, 2010

 Past Issues

Column

The "Real Estate-Mortgage Complex" of the Last Decade

Much of the blame for the housing bubble and the subsequent recession has been attributed to the growth in subprime lending between 2002 and 2007. However, a simultaneous development of broader importance was the steady relaxation of affordability standards, which allowed prospective home buyers to qualify for increasingly large loans.In concert with the growth in the subprime market, lenders' tinkering with time-honored underwriting metrics eventually linked the two sectors in a massive feedback loop that distorted both real estate prices and the mortgage markets. Lenders have traditionally defined "affordability" through qualifying metrics such as debt-to-income (DTI) ratios. Such ratios limit the amount of debt service to which borrowers can commit and, by implication, constrain the amount that buyers can spend on home purchases. At the macro level, their pervasive use forced home prices and incomes to rise proportionately, and acted as a brake on unsustainable home price appreciation.

ABS

Living Without the Govt. Lifeline

In 2009, the ABS market came back from the brink. Because of extensive government support in the U.S. and across the pond, issuers and investors emerged from hiding and started doing deals again. But this nascent activity was all premised on the fact that the government was serving as the securitization market's backstop. Now TALF is scheduled to go away in March, although Treasury Secretary Timothy Geithner recently made strong hints about extending the government program. Even with the near-term outlook looking good - spreads, for one, have held tight - U.S. players are still hoping for more TALF.

ABS Market Players Speculate on Life After TALF

With the safe harbor from the Federal Deposit Insurance Corp. (FDIC) and Term ABS Loan Facility (TALF) in place until March, there are near-term positive expectations for the ABS market going into the New Year, market sources said. "For the first quarter, there's still new issuance guaranteed under TALF, spreads remain tight and there's good opportunity out there particularly with investors a lot more comfortable with transaction fundamentals," said Douglas Long, executive vice president for business strategy at Principia Partners. He added that new-issue offerings without leverage are also coming in at really good pricing.

CLOs Spice Up Leverage Loan Market

As is often the case when looking into the future, we have some good news and some bad news regarding the leveraged loan market in 2010. The bad news, though hardly a surprise, comes in the form of returns - much lower ones. The good news is the expectation that primary issuance will jump, with some market participants portending the return of the CLO. According to Barclays Capital estimates, U.S. institutional loan volume should hit somewhere between $70 billion and $80 billion in 2010. And analysts at Bank of America predict total U.S. leveraged loan volume will reach as high as $106 billion.

MBS

What Comes Next After the Govt. Pulls Out of the Agency Space?

The U.S. economy and housing market have stabilized, leading to a rally in some sectors of ABS and MBS. However, the rally masks the fact that the housing market has yet to reach its bottom, and that will have a large impact on investment decision making in 2010.

Reform Minus GSEs: Will It Add Up?

With financial reform bills that already surpass the 1,000-page mark, it would be hard to imagine any subject left untouched by the effort on Capitol Hill to overhaul financial services. But the White House and Congress are essentially ignoring the problem posed by Fannie Mae and Freddie Mac, which the government took over in the opening salvo against the financial crisis.

Looking Back and Ahead at All Govt. Mortgage Programs

As 2009 began, the government was scrambling to put together programs to keep financial institutions afloat, provide liquidity to the frozen credit markets, keep people in their homes and develop stimulus packages to prevent the economy from sinking into a depression. The Federal Reserve initiated its program, which started on Jan. 5, to buy $500 billion in MBS by the end of 2009. This came along with various other initiatives: Congress passed a $787 billion stimulus package in February, the Fed extended and expanded its different liquidity facilities and the Obama administration released its Homeowner Affordability and Stability Plan designed to help between seven and nine million families restructure or refinance their loans to avoid foreclosure.

2010 Shaping Up to Be Transitional Year for CMBS

Reports about the death of CMBS have been exaggerated, it appears. Following a year of inactivity, issuance from three single-borrower CMBS deals has hiked up expectations for the sector heading into 2010. Market participants anticipate that 2010 will be a transitional year in which new CMBS issuance could rise to $15 billion, after 2009's total of more than $2 billion, pushing issuance back to mid-90's levels.

Global

Few Master Servicers in Mexico RMBS Despite SHF Rule

The RMBS downturn in Mexico, most acute among nonbank originators, has put sector regulator Sociedad Hipotecaria Federal (SHF) on war footing. In September the agency made the inclusion of a master servicer in mortgage and construction-loan deals a precondition for carrying the SHF stamp, only one of the rules it has instituted this year as a way of reviving investor confidence in the sector and strengthening transactions.

Mexican Regulators Move on RMBS & Construction Loan ABS

Moving in synch with regulators from other countries, Mexico's National Banking and Securities Commission (CNBV) has taken measures to boost transparency in the housing finance markets. In addition, the capital-markets regulator may soon push ahead on measures that are on the agenda elsewhere, such as retention requirements. Before the holidays, ASR caught up with CNBV Technical Vice-President Alan Elizondo to discuss what the regulator is working on in areas pertinent to the asset-backed market.

Brazilian CDO Draws Interest and Curiosity

As of the holidays, a hefty CDO was in the Brazilian market and drawing substantial interest, sources said. Led by Credit Suisse and Banco Santander, the deal, called Credito Corporativo Brasil, has raised eyebrows as well, for reasons obvious to anyone who is even vaguely familiar with the ruin of CDOs in other countries.

Euro RMBS Revival Colored by the Fate of Repo'd Assets

Since mid-2007, the European securitization primary markets have been living in a state of suspended animation. The availability of attractive financing terms through the Central Banks relative to that offered in the market caused companies to stop issuing in the primary market, delaying its orderly recovery.

ABS Totals

ABS Totals

View year-to-date 2010 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.