The government is a month into selling its AIG holdings. Despite the bids for the auctions being pre-announced, the sales are causing a commotion in the RMBS secondary market, and the reaction from securitization players is not entirely positive.

Yes the series of sales is helping price discovery, but it is also crowding out non-agency securities. The Alt-A and non-subprime portions of the portfolio have achieved better pricing, clearly demonstrating that RMBS investors remain averse to risk.

The policy of inundating the market with constant supply isn't working. So as Nora Colomer reports in this month's cover story, the government has decided to postpone the next auction until June 6 and will hold the subsequent one in July. It's also making bid lists larger than the small, weekly installments we saw before.

The sales, if anything, have underscored the market's unwillingness to digest a large supply of collateral, even though this is government sponsored. Bad assets are still a very hard sell, as investors remain fearful given the country's still-fragile economic condition.

This trial-and-error exercise has its good side: it shows that government is listening to market sentiment. We can only hope that regulators will keep the lines open with participants as well.

Clamoring to be heard right now are the smaller rating agencies, which are leery of the rules the SEC proposed on May 18. Mandated under the Dodd-Frank Act, these regulations would severely hamper their business model. In his article, John Hintze argues that implementing what's on the table would strengthen the hand of the big three agencies, precisely what regulators have said they don't want.

Bill Berliner talks about how the Dodd-Frank Act mandates that deals include premium-capture cash reserve accounts. This provision, according to Bill, requires issuers to set up a cash account that prevents them from attempting to monetize excess spread. He says the proposal can be highly damaging to consumer mortgage lending and raises another impediment to the revival of non-agency RMBS.

The government's stated objective is to stimulate private label RMBS, so they can recede from the primary market. But it seems to be doing just the opposite by pursuing rules that kill issuers' ability to monetize excess spread through the sale of IOs and premium securities.

There's one market, however, that's faring much better than RMBS despite government regulation: commercial real estate. In turn, CMBS has made a comeback. Fueling the trend is Cantor Fitzgerald & Co, which issued its first CMBS last April. I went to their offices last month to interview CEO Shawn Matthews and Anthony Orso, CEO of affiliate CCRE. My story on them examines their strategy of targeting middle-market lending and their plans to become a regular fixture in CMBS.

Finally, Felipe Ossa covered the securitization market's best known annual gathering of players devoted to Latin America. He found that the tone's improved since last year and dealmaking is on the rise, especially in Brazil. But risks are rearing their head as well.


-Karen Siabayan, Editor

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