CDOs/CLOs

The securitization market's mood remains palpably apprehensive, but last week several issuers resigned themselves to the reality of having to accept wider spreads. So, they completed a handful of student loan, credit card, equipment and subprime auto loan deals. Granted, issuance failed to amount to more than $4 billion, among those deals, but several market participants withstood market conditions to get things done.

You might think hosting a conference in a building that's a throwback to the quiet elegance of Belle Epoque New York would give beleaguered finance types respite from the hostile markets outside.

The breadth of downgrades - and the resulting liquidations and margin calls - upended the U.S. subprime RMBS market in July. But the downgrades are far from over, market participants say, and many expect a repeat of the July experience.

Don't let the plainness fool you. Although MRU Holdings, known as MyRichUncle, made its securitization debut with a deal that had no innovations or special features outside of up-to-the-minute SLABS techniques, the student loan firm is making a huge splash in its core industry.

As bad as the subprime mortgage meltdown has been, market analysts don't question that there will be a recovery. The concern is really about how soon the bounce-back will happen. The toll the mess has taken on the reputation of mortgage brokers, however, is a different matter.

The Federal Reserve has urged the use of loan modifications to stem the tide of defaults that could result from the current subprime mortgage troubles, and servicers appear to be responding.

Hard money lending has traditionally been used as a short-term funding option for borrowers who have been seriously delinquent on a prior loan and are unable to refinance into a new, conventional loan.

Mortgage flows in the early part of the week were below average and mixed. The rally in Treasurys last Monday, to even lower yields following the previous Friday's shocking employment report, brought additional convexity buying from servicers. Buying support also came from real money. Last Tuesday's selloff moved the convexity bid to the sidelines and generated better selling as investors again focused on various risks. This included news that Countrywide Financial was seeking another capital infusion. Uncertainty about Federal Reserve action on Sept. 18 added to general nervousness in the market. Further adding to mortgage woes were poor dollar rolls on the high funding costs. As far as overseas investor participation was concerned, it remained lackluster into midweek. Originator selling was also light, with roughly a $1 billion per day average.

The European Central Bank's announcement last week that it would hold off on any further rate hikes in the current market led market players to suspect that the Bank of England will follow suit. And while a slowdown on rate hikes is expected to improve consumer sentiment, some players believe the current market crisis could take more than two years to run its course.

Saying that securitization and its benefits require functioning capital markets, two industry groups last week outlined measures designed to improve market conditions for the ABCP and structured investment vehicle (SIV) sectors.