The consumer ABS space may have performed well through the worst of the crisis, but panelists discussing opportunities in non-mortgage ABS at the American Securitization Forum’s (ASF) 2010 gathering reminded its audience that uncertainty, fostered by new and potential regulations, could stand in the way of a more robust recovery.
Issuance in consumer ABS hit $250 billion last year, about half of 2008. The total will be similar in 2010, while maturities this year will reach $130 million, according to Michael Antonicelli, portfolio manager at Fortis Investment Management.
No one on the panel thought the market would collapse with the removal of Term Asset Backed Loan Facility (TALF) later this year, but other developments could eat into activity and not all of them are regulatory.
Pamela Westmoreland, managing director at GE Asset Management, questioned the wisdom of investors requiring the levels of enhancement that have prevailed lately. “I would never say anything is overenhanced, but I do worry frankly that some of the standards we’re applying are a little over the top,” she said, adding that not every deal in the market has to be a triple-A.
Her concern was that criteria could tighten to the point where issuers will simply abandon ABS.
Issuers attending ASF 2010 were showing “signs of optimism”, said Nichol Merit, director at TIAA-CREF. They still considered ABS a viable funding alternative, and some indicated they planned to loosen underwriting standards this year. But she saw decidedly negative signs from government proposals and other regulations.
In addition, as new regulations limiting certain activities come on line, to make up for lost profitability credit issuers have instituted measures such as “non-activity fees.” How that will affect consumer demand for credit remains to be seen, said Deutsche Bank director Elen Callahan.
Where the government has a clear policy interest, such as in student loans, the prospects for value in ABS look dim, panelists said. Indeed, private student loan deals have not yet proven they can survive without substantial government support, making them a likely casualty of TALF withdrawal. Dealer floorplan ABS is another doomed sector post-TALF, Callahan said.