ABS players are closely monitoring the Greek government's struggles and assessing how they'll impact European securitizations.
Some things are quite clear already. ABS from Greece and other peripheral countries of Western Europe are bound to suffer, says Nora Colomer in this month's cover story.
Still, strong credits have still been able to come to market. Despite the initial panic, a week into the Greece crisis an issuer like Lloyds was able to rise above the chaos to price its deal.
However, active primary market issuance can't take the sting out of the regulatory hassles plaguing European market participants.
Issuers across the pond are also looking askance at SEC Rule 17g-5. Even though this regulation was postponed, my story this month details how these firms are still struggling with the fact that U.S. regulators can require them to comply with disclosure requirements. The rule applies even for transactions that have no U.S. affiliation aside from being rated by an SEC-registered agency.
Regulatory bodies are not the only ones tightening the screws. The rating agencies are also becoming more and more vigilant about their criteria. For instance, heightened awareness of risks outside of credit problems has driven Moody's to re-evaluate its operational risk criteria. With this change, the agency will focus less on collateral quality and more on the performance of the difference parties in the deal, such as servicers.
What regulators want are not only simpler deal structures but also increased disclosure on the underlying collateral in transactions. In an observation contributed to ASR this month, Principia Partners' Douglas Long said that an effective way to answer the regulators' call is by translating available data into more standardized and useful forms for investors to utilize.
Along the same lines, participants in a 1010data-sponsored roundtable featured in this month's issue talk about how investors are incorporating different data variables including home prices in a particular geographic region and the health of a local economy to determine the worth of the bonds that they want to buy or are holding. These details would shed light on why borrowers walk away from their homes and default on their mortgages.
Investors are not only worried about borrowers walking away but also about servicers under HAMP changing the terms of mortgages backing the bonds that they own, at least for first lien holders. Until this is addressed the recent revival of the non-agency mortgage market, starting with Redwood Trust's deal, will not be sustained by first-lien buyers.
Investor vigilance is certainly welcome given past mistakes, as Bill Berliner points out in this month's column. He says that one of the major causes of the financial crisis was the shift that investment managers made from being gatekeepers to focusing on managing CDOs and SIVs. This added yet another layer of deal management whose primary focus was buying bonds to complete deals.
Finally, Felipe Ossa attended the Securitization and Structured Finance in Latin America conference, hosted by Euromoney Seminars and LatinFinance. The themes included assessing the recent past, investors' newfound relationship with collateral, and the anticipated arrival of covered bonds, among others. After having their hopes dashed, players in the region are certainly chastened, but there are a number of reasons to think the market will be back to where it was in only a couple of years. Indeed, in domestic markets like Brazil, it never really went away.
- Karen Sibayan, Editor