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News

Fannie Mae/Freddie Mac Get OK on 125% LTV

Fannie Mae and Freddie Mac have received the green light from their regulator to refinance underwater homeowners with loan-to-value ratios as high as 125%.

FDIC, Advanta Reach Settlement

The FDIC has settled with Advanta Bank Corp. regarding the latter’s alleged deceptive and unfair practices that are in violation of section 5 of the Federal Trade Commission Act.

Hard Times Ahead for U.K. Credit Card Deals

Increases in U.K. credit card delinquencies and charge-offs in May drove to new heights the Fitch Ratings indices tracking these performance variables.

Mortgage Rates Ease in Latest Freddie Mac Survey

Freddie Mac reported today that 30-year fixed mortgage rates averaged 5.32% with an average 0.7 point for the week ending July 2.

Harp Loan-to-Value Maximum Raised

The Obama administration announced Wednesday an increase in the maximum loan-to-value ratio for mortgages under its Home Affordable Refinance Program by 20 percentage points, to 125%.

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Articles

A Blueprint for Mortgage Regulation

A recent article in the Washington Post noted that the Obama administration is engaged in active discussions to create a regulatory commission 'that would have broad authority to protect consumers who use financial products,' including mortgages. This story was reported a few days after the publication of a piece in the New York Times entitled 'My Personal Credit Crisis,' in which the author (Edmund Andrews, a Times economics reporter) outlined how his willingness to aggressively obtain financing for a home he couldn't afford led him to sabotage basic underwriting practices while driving himself into insolvency. (Basically, he violated a fundamental rule of self-preservation: 'When you find yourself in a hole, stop digging.')

Euro Countries Take Measures to Address Crisis

While much of the focus has been placed on U.S. and U.K. government initiatives, Continental Europe has also made strides to implement measures to alleviate the economic pressures on the market. In Germany, a draft bill recently passed aims to help banks transfer structured securities, such as ABS and CDOs, to a government-backed unit on a voluntary basis. The government plan would allow private banks to offload troubled assets to a special-purpose vehicle, with a 10% reduction in their booking value. In return, the banks will receive a government-guaranteed bond amounting to the transfer value of those assets.

Ray of Light: Can the U.S. and U.K. Govts. Restart ABS?

At the start of 2009, the formula that would save securitization began with government intervention. Six months down the line, the U.S. and European markets have seen some results. For Europe, the story has naturally been fragmented or on a country-by-country basis where some governments pledging more support than others.

ABS Market Recovery a Question of Timing

The deadlock regarding securitization activity in Europe still persists. While pressure on credit markets eased significantly since March, ABS spreads did not follow suit! Given the rapid pace of spread tightening and sentiment changes in the credit universe during the last couple of months, the jackpot question this spring from a credit risk perspective regards timing: Will the credit crisis fade sooner than anticipated or do markets face another bull trap? And will the ABS market keep its outcast status or will there be a rehabilitation? Asset backed securities have been impacted more than any other sector by the crisis. Having been at the center of the storm, this market has changed significantly during the last two years. First of all, public placements have practically become non-existent: This is due to unattractive issuance spread levels (average 'AAA' RMBS spreads over 2009 were quoted in areas above 300 to 400 basis points) as well as a prevailing lack of investors, especially for lower parts of the capital structure. As banks hardly had realistic alternatives to relatively attractive central bank repo refinancing, a flood of repo transactions occurred (E912 billion ($1.25 billion) 2008-2009 year-to-date). However, outstanding ABS volumes which were retained for central bank repo windows have started to flatten out.

The European Central Bank's Repo Facility for ABS

As the turmoil in global financial markets continues to affect financial institutions around the world, it is increasingly evident that the asset repurchase facilities provided by central banks have become a lifeline for banks struggling to raise capital in the current climate. In a market devoid of its traditional investor base, originators and arrangers of securitization transactions within the Eurozone have come to rely heavily on the European Central Bank's (ECB) asset repurchase or 'repo' facility which allows (among other assets) ABS to be used as collateral for funding. In contrast to the various U.S. facilities designed to restart the U.S. securitization market, the ECB facility is intended to allow financial institution holders of ABS access to short-term finance at (until recently) attractive rates, and has led increasing numbers of originators to structure, issue and retain their 'own-name' ABS specifically for the purpose of accessing the ECB's repo facility. Unsurprisingly, originators have flocked to the ECB in droves with newly-issued ABS over the past two years as funding conditions have deteriorated, creating a de facto 'lender of first resort' position for the ECB within Europe. This heavy reliance on the ECB's repo facility has inevitably led to a gradual tightening over the past eighteen months of the criteria by which the ECB assesses the eligibility of assets submitted as repo collateral and, in particular, the criteria applicable to ABS as 'eligible assets'.

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