As earlier reported by StructuredFinanceNews.com, the Federal Deposit Insurance Corp. (FDIC)yesterday released for public comment an Advanced Notice of Proposed Rulemaking (ANPR) on its treatment as conservator or receiver of financial assets transferred by banks related to a securitization after March 31, 2010.
Merrill Lynch Bank of America analysts think that the FDIC is looking for uniform securitizations standards across the industry, covering regulations adopted by the bank supervisors and federal laws passed by Congress.
FDIC's ANPR has a list of questions and sample regulatory text, which will form a basis for comments on preconditions. These preconditions need to be satisfied before a securitization can meet the new safe harbor rule.
The questions and text covers structure, sources of payment, disclosure, documentation, compensation, and risk retention. Analysts noted that in many cases, securitizations backed by residential mortgages must meet more rigorous preconditions. The comment period will last 45 days.
Analysts believe that the market conventions and structures used in the consumer ABS, such as in auto and credit card ABS, already satisfy a number of the preconditions that were stated in the sample regulatory text.
In cases where they do not, Merrill BofA analysts said that most banks will likely have the ability to implement the changes needed to meet the preconditions, if the sample text is adopted without change.
"We believe the securitized markets will remain an important funding source for many banks, although codifying and expanding the preconditions necessary for safe harbor, along with changes to regulatory capital due to the implementation of FAS 166/167 and the prospects of federal securitization laws, could limit the benefits of securitization," analysts wrote.
They added that any spread weakness caused by the perceived headline risk related to safe harbor or other securitization regulations should be seen as a buying opportunity.
Even though the regulators and lawmakers think some securitization reform is necessary, according to analysts, they seem to also agree that the market is a valuable source of liquidity to lenders.
However, BofA Merrill analysts do not expect robust supply in consumer ABS for next year. These projections are based on the relatively low consumer spending and tighter underwriting standards that will lead to slow growth in origination volumes and receivable balances.
Even though they expect credit performance to remainunder pressure, they think that the level of deterioration will continue to moderate and issuers will stay supportive of their securitization programs. All should be supportive of spreads as well, they added.
The interim rule grandfathers all securitizations for which financial assets were transferred or, for revolving securitization trusts, for which securities were issued prior to March 31, 2010, analyts noted. The FDIC is seeking comments on the need to extend the interim rule beyond March 31, 2010.
Analysts believe that the FDIC will have to extend the interim rule to allow for the development of new safe harbor rules and the implementation of those rules.
The American Securitization Forum will be hosting a conference call regarding the ANPR.