The so-called foreclosure scandal has grabbed headlines over the past month. ASR's November issue looks beyond the mainstream coverage to its effect on bondholders.

In the cover story, Nora Colomer says the delay in foreclosures should have a minimal impact on the senior bonds in RMBS, although slower prepayments might chip away at their longer-term performance. It's the subordinated tranches that are in for trouble, as the longer liquidation process feeds into losses.

Naturally, the longer the major banks keep foreclosures on hold, the higher the losses and lower the recovery prospects for affected deals all around.

In this month's column, Bill Berliner also tackles the foreclosure crisis, but unlike Nora, he focuses on the bigger picture. Bill argues that the calls for a national moratorium on foreclosures are misplaced. In his view, prolonging the process not only tramples on the legitimate interests of bondholders and financial institutions but also stokes uncertainty in a housing market plagued with high unemployment and huge overhang.

Instead of a blanket foreclosure moratorium, there are more productive alternatives to which the government and the private sector can turn to, as I highlight in my profile of Paladin Strategic Partners. This investor is looking to alleviate the problem by rehabilitating borrowers to keep them in their homes while providing the firm's investors with target returns.

Apart from keeping foreclosures in check, the regulatory machine keeps dispensing new rules that govern the securitization market. John Hintze focuses on the SEC's Oct. 13 proposal that requires issuers to review the underlying assets in their ABS and disclose the results. While issuers may have been performing reviews prior to this, making the results public make the issuers more accountable and thereby increases their liability risk.

Not all the regulatory news is mixed-to-bad for our industry. The FDIC recently finalized its Safe Harbor, which Moody's said contained terms that were more concrete. The final rules rely on preconditions that are determined at a deal's close, and stay away from subjective provisions. S&P and Moody's had previously said that the proposed Safe Harbor had provisions that were hard to comply with, making the rules' application uncertain.

In addition, despite the foreclosure controversy, there has been some notable domestic and foreign deal activity. John details the NCUA's and FDIC's recent sizable transactions. These offerings, according to John, won't be the last because their coupons offer a nice pick-up from agency MBS. Across the pond, strong European ABS primary issuance in October showed that European securitization has so far been immune to "foreclosuregate," a fact that Nora demonstrates in her Euro market recap.

Latin America hasn't been deterred either as Brazil's deepwater oil expansion has found funding through ABS. Last month saw the closing of a $270 million transaction backed by revenues stemming from a seven-year charter agreement between the energy company Petrobras and SPV Turasoria DE for the use of the Lancer drilling vessel. Another $1.5 billion deal involving Brazil's Odebrecht is in the works. Talk is that there will be additional similar transactions, Felipe Ossa says, as operators scramble to add vessels to their drill-ship fleets.


- Karen Sibayan, Editor

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