Setting the stage for the American Securitization Forum’s (ASF) 2010 securitization conference, the opening panel discussed the impact of government support and preparing for its withdrawal.
By a yawning margin, a survey of conference participants felt that the looming end of 1Q 2010 termination of the Federal Reserve’s program for buying RMBS would have a bigger impact on the market then the discontinuation of TALF in March for new issue deals and June for legacy transactions.
GSE deals could widen “a touch” by 20-30 basis points once the program ends, said Sean Dobson, CEO at Amherst Securities Group. He added that the compression will mostly be felt in originator profit margins rather than in mortgage rates.
As for private label, Dobson warned that its comeback should not be built on the back of the kind of no-money-down, low doc loans that was a vital ingredient of the crisis.
Private label RMBS, in the words of Jordan Schwartz, a partner at Cadwalader, Wickersham & Taft, was only in the third stage of the five stages of grief of market psychology.
The anger of a year ago, often manifested in finger-pointing between players, has given way to a discussion mode. But while the market may be willing to talk about its return, the circumstances — housing prices not least among them — are simply not compelling enough to restore deal-making.
In CMBS — the potential “other shoe” — Fitch Ratings managing director, J. Douglas Murray pointed out that liquidity has streamed back faster than expected.
The market does appear to be in rebound mode. There are expectations of $20 billion in CMBS this year, and while spreads have already edged in, Morgan Stanley managing director Valerie Kay said her team was still bullish on pricing. She expected a “kick the can” mentality to prevail, as refinancings push the heavy maturities further into the future.
The struggle this year, said Sanjeev Handa, head of global public markets at TIAA-CREF would be for issuers, dealers and investors to find a place where they are all “suitably unhappy.”
That might be better than the mad-happy mood of a few years ago, and certainly better than the doom-and-gloom overreaction of last year. “We’d gone from grossly mispricing risk on one side to grossly mispricing risk on the other,” said Sallie Mae Treasurer Jonathan Clark.
But the ground, while firmer, needs more tending. When asked the question of when mortgage and consumer ABS will reach a new equilibrium, the largest percentage of market participants, some 42%, said 2012.