CDOs/CLOs

LAGUNA NIGUEL, CALIF. - As the market prepared for the Dec. 1 implementation of new rules governing the securities offering process, a question lingered among structured finance professionals - whether the reforms governing the offering process for public deals will spill over to the 144A market.

LOS ANGELES - For the first time in a long while, volatility has returned to the home equity ABS market. And with that volatility, some would argue, comes a more challenging terrain for ABS CDO managers.

U.S. Bancorp bolstered its status as one of the nation's major ABS and MBS trustees last week when it announced the acquisition of Wachovia Corp.'s corporate trust and institutional custody businesses. With this purchase, U.S. Bancorp will become the second largest ABS and MBS trustee, in terms of par amount of securities and number of issues, behind Deutsche Bank Trust Co. Americas. The deal, executed through its U.S. Bank subsidiary, will give the Minneapolis-based trustee administration of $180 billion worth of ABS and MBS spread over 317 issues.

The U.S. ABS primary market generated $15 billion in issuance last week, carrying the market into its final month of what has been another record-breaking year. Issuance volume for 2005 has already surpassed last year by over 20% and, if prophecies about a pre-Reg AB issuance glut are correct, it could pass the $1 trillion barrier.

Not long after information bearing the actual extent of the damage caused to the Gulf Coast region by Hurricane Katrina began to hit investors on Wall Street, mortgage lenders, insurers and others, did the conversation turn to the future - and what natural disaster, and where, could hit next.

Defaults and losses in the manufactured housing sector increased for most vintages, while delinquencies were mixed and repossession levels improved for most vintages, according to a report by Credit Suisse First Boston.

Even while prepayments in the residential mortgage market cool down, the number of commercial mortgage borrowers currently prepaying their loans is not only soaring but anticipated to accelerate through year-end and into 1Q06, according to Wachovia Securities analysts. For the CDOs backed by CMBS and other commercial real estate assets that indicates a chance that performance could be boosted, resulting in upgrades. In the same manner, increased call options on unsecured credit obligations have accelerated paydowns in the later-vintage high-yield CDO market (see ASR 8/22/05).

The U.S. auto ABS market has soared to new heights this year with over $100 billion in issuance, and performance has stayed strong throughout and even improved, according to analysts. However, questions about the strength of the U.S. consumer loom in the background, as do the ever-present theories that the hot pace of the sector, and the ABS market in general, will crack and come tumbling back to earth.

Amid growing investor concern regarding mortgage fraud, New Century Financial Corp. announced that it partnered with a company to implement fraud prevention software into its loan origination software.

As the number of U.S. consumer bankruptcy filings have returned to earth in recent weeks, the industry has been busy digesting the impact of the surge in filings and what it will mean for credit card ABS. Last week, a team of experts assembled by Barclays Capital put forth some perspectives on what it all will mean for the sector.