At a forum hosted by the American Securitization Forum last Wednesday in New York, ABS participants willingly shared the blame for current market problems, and admitted that a lot of the old ways of doing business, including relying so heavily on REMIC laws, will not work.
James Callahan, executive director of Pentalpha Capital Group, said it was time to recognize that the current approach "was great when everyone was paying their bills, but now we have 25% of the people not paying their bills. It's time for a do-over."
Central to the discussion at the forum was the need for greater transparency. One attendee complained about the difficulties of getting servicer reports for non-cash stocks on public deals, while another urged for an improvement in data integrity. "We have so many problems evaluating these securities and you have so many people playing the game and you can't get the right information," Callahan said.
Evan Firestone, president of 1010data, called for a central repository to be set up for all future issuance, assuring that investors have the correct information on every loan. Meanwhile, Sanjeev Handa, head of global public fixed-income investments at TIAA-CREF, questioned whether investors should be given the same information that the rating agencies receive.
The panelists also discussed the challenges the industry faces with pricing and valuation, especially as credit and liquidity have both diminished from the market. Douglas Magnolia, managing director at the Bank of New York Mellon, sparked a debate over whether the industry should have standardized pricing and valuation for certain securities to establish a consistent benchmark.
Dan Castro, managing director at GSC Group, argued that standardized pricing would strip away the competitive advantage that some firms have over others through better data. "A lot of folks have a vested interest for these things to not go away," he said.
Jason D'Angelo, a portfolio manager at AIG Global Investment Group, agreed. "If there is a standard price, what is it that we are doing? There has to be a difference of opinion or you don't have a market."
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