No surprise here: ABS East Conference delegates are concerned that the weakness in the subprime mortgage market is expanding to affect the overall market for securitized assets, according to an Information Management Network survey.

Ninety-eight percent of respondents, which included issuers, service providers, and investors in the securitized bond market, said they saw weakness of subprime debt spreading to higher rated mortgage backed bonds, up from 85% reported in a similar survey in March 2007.

Further, 63% of the 164 respondents said that subprime weakness had "somewhat" impacted other bond classes including securities backed by auto, student, credit card, and corporate loans. The remaining 37% described the impact on other bond classes as "severe."

Respondents were also not sold on the improvement of underwriting standards thus far in 2007. 56% of the respondents described 2007 attempts to address unsound lending practices as "too little, too late," while 16% thought that the industry had "done nothing" in 2007 to improve loan quality. In fact, only 19% described industry moves to address questionable loan criteria as "reasonable" or "bold."

With subprime related troubles brewing overseas, some respondents expressed concern that foreign investors would pull back from the U.S. market.

About 10.3% saw diminished foreign interest confined to subprime, while 45% saw diminished foreign interest on all securitized U.S. home mortgages. Interest across all U.S. securitized assets had diminished, 39% said, while only 6.5% suggested that domestic subprime lending would not have much of an impact on foreign investors. On a more positive note, respondents did not seem overly concerned that the U.S. and overseas markets were "decoupling." Indeed, while 51% of respondents said decoupling was "somewhat" apparent, 41% said that they saw no such signs.

Preceding the release of more negative housing news from the October remittance data, respondents seemed split on how accurately the ABX index indicated current market value. 37% of respondents viewed the ABX index as "reliable" while 34% viewed the index as "unreliable." 57% thought that changes in home prices were the largest determinant of mortgage-backed bond performance. This was up from 40% in the March 2007 survey.

In the latest survey, 25% said interest rates were the most important factor, while 17% said unemployment levels had the greatest impact on mortgage-backed bond performance.

As the potential for additional Fed Reserve cuts mounts, 56% of respondents expressed confidence that the Fed Reserve can address the current liquidity crisis by cutting interest rates, including 4% of respondents expressing high confidence. Fourty-four percent said that they were "not at all confident."

The anonymous survey was conducted online from October 12 to October 19 and solicited to a database of securitization professionals including 1,200 pre-registered to attend IMN's ABS East Conference from Nov. 4 through Nov. 7, 2007.

Respondents describing themselves as "investors" comprised 37% of participants; 32% were "service providers" including lawyers, investment bankers and bond raters, 17% as "issuers," and 10% as "issuer/investors."

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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