Recent attacks on securitization have centered on its legal soundness.

A witness's testimony in a recent bankruptcy case argued that Countrywide failed to transfer to the ABS trust a promissory note indicating the borrower's willingness to pay. Critics held that without such a note, the trust might lack proper legal standing, and enable investors to force sponsors into buying back toxic MBS.

Not so, said the ASF, in a white paper co-signed by a host of securitization law firms, which argued that the non-transference of this note was validated by extensive case law and longstanding practice.

But regulatory issues still beat out the legal ones as the sharpest thorns in the side of the ABS market.

Nora Colomer drives this point home in one of her stories this month. She cites Paul Vambutas, a managing director at UBS, who said at a recent ASF event: "It's the confluence of the changes to Reg AB with Dodd Frank and Basel III all happening at the same time. Banks as securitizers, dealers or financiers basically have to take un-hedgeable risk retention in the specter of Basel III."

Indeed, although well intentioned, Basel III will remain a test for regulators across the globe. They need to start the difficult task of implementing the new rules even as they tackle issues left unfinished by Basel II, including a potential capital surcharge on the largest banking institutions. This is an issue tackled in a story by Donna Borak, a reporter at ASR sister publication American Banker.

Even domestic regulators have their work cut out for them. Experts say that U.S. regulators have to issue notices of proposed rulemaking that will have to take into account Basel III, plus the overlay of the Dodd-Frank Act.

Aside from operational difficulties, the most well-intentioned regulations have unintended consequences.

For instance, policy changes including the potential extension of the government's Home Affordable Refinance Program (HARP) in 2011 to all GSE loans can result in faster prepayment speeds on agency mortgages, Nora explains in her other story. And prepayment risk has always been a bete noire of MBS investors.

Implementation of these regulations is always a little tricky as well. My article, for instance, talks about the push and pull between the FDIC and most of the securitization industry.

The FDIC wants national loan servicing standards to be adopted together with the risk retention rules under the Dodd-Frank Act, which are set to be finalized in April 2011. The agency and some financial analysts contend that there is an urgency to have these standards set in stone, while most ABS players say that combining these two in one set of rules will just delay and inevitably muddle up the implementation process.

All this brought about by the different regulatory changes have one major impact - diminishing ABS issuance.

As I point out in my public manager rankings story, the considerable drop in year-over-year issuance can be mainly attributed to a dearth of credit card securitizations. The decrease is a direct result of the loss of regulatory capital relief for bank issuers in mid-2009, according to Barclays Capital analysts.

Meanwhile, Felipe Ossa looks forward to 2011 in the largest emerging markets, and sees, among other things, continued growth coupled with the risk of more relaxed underwriting risks in Brazil; the persistence of the real estate fallout in Mexico; and more future flows from Turkey and potentially Russia and the CIS.

Here in the U.S. (and I suspect Western Europe) the New Year for ABS pros might not feel so new. It seems we'll be grappling with the same issues that have dogged us since the crisis blew up. Here's to hoping that 2011 will bring more resolutions than 2010.


Karen Sibayan, Editor

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