Some securitization players are hanging their hopes of a market recovery on the Term ABS Loan Facility (TALF) and, perhaps even more, on the Public Private Investment Program (PPIP).
They see these initiatives as our best bet for slashing the overhang of legacy RMBS. And it's only when we get rid of the overhang that we'll see a sustained ABS rebound.
But we may be getting ahead of ourselves.
As Nora Colomer points out in her article, pricing on non-agency paper has risen on expectations of PPIP's impact. But there's no guidance yet on how PPIP deals will be done, there's not a strong basis for financing rates, and the size of haircuts remains an unknown. As a result, we're still in the dark about how these will determine leverage for different asset classes under the program.
With the impact of PPIP on illiquidity still debatable, Nora says that the market is in a wait-and-see mode on what dent this program could actually make.
An endless queue of assets is reflected in the country's clogged foreclosure pipeline. In her story on servicing, Nora cites Barclays Capital as reporting that although recovery in the national economy should continue in 2H09, parts of the U.S. housing market will remain bogged down by roughly 4 million foreclosed or seriously delinquent properties concentrated in certain states. This has led Treasury Secretary Timothy Geithner to encourage mortgage servicers to improve their loan modification efforts.
Bill Berliner, in his column this month, highlights the glut of foreclosures and expresses his view that while the real estate markets and mortgage credit performance have shown signs of bottoming out, the foreclosure picture remains grim. He argues that understanding the foreclosure process as well as accurately projecting loss severities and lags will have a bigger role in evaluating investment choices and strategies in the non-agency MBS sector.
Securitization players seem to agree that understanding the data and increased disclosure might solve a lot of the current market problems. In this vein, the American Securitization Forum (ASF) took several big steps forward in mid-July by requesting comment on model RMBS representations and warranties. The ASF also plans to adopt a system to identify individual loans in securitizations by summer-end.
As John Hintze writes in his article on these initiatives, the ASF believes that improved disclosure and reps and warranties should reduce buybacks by making problem loans easier to identify before they enter a securitization. Investors should also strive to be more accurate in their due diligence, he says.
This month's issue also highlights some bright spots in the market. FFELP student loans, for instance, are getting funding from a conduit called Straight-A, which I cover in this issue. With its innovative structure, Straight-A could provide a blueprint for other programs financing government-backed loans.
Meanwhile, Felipe Ossa examines a recent flurry of activity in Mexican ABS and whether it has any legs. The prognosis for that once ailing market is actually halfway decent. Another good sign: Felipe's Q&A with HR Ratings, an agency that's placing a few bets that the bustle will return to Mexico's structured finance market.
On a similar note, CIT's woes, according to Bridget Cass, won't spell an end to the robust performance of its equipment ABS thanks to increased credit enhancement.
And finally, Nora discusses some recent European covered bond deals that portend even more activity in the sector.