In 2009, the ABS market came back from the brink. Because of extensive government support in the U.S. and across the pond, issuers and investors emerged from hiding and started doing deals again. But this nascent activity was all premised on the fact that the government was serving as the securitization market's backstop.
Now TALF is scheduled to go away in March, although Treasury Secretary Timothy Geithner recently made strong hints about extending the government program. Even with the near-term outlook looking good - spreads, for one, have held tight - U.S. players are still hoping for more TALF.
After all, as I discuss in my story, even the non-TALF deals that closed in the last quarter of 2009 can ascribe their smooth execution to the pricing floor created by the program.
It's only natural players are loath to say goodbye to that kind of support.
Things look similar for the RMBS space, where Nora Colomer explores the big question for the New Year: What will happen after the Fed stops its $1.25 trillion program to buy GSE MBS? Along with this, the Treasury also stated that it will be ending its MBS purchase program on Dec. 31. By then, it will have bought $220 billion in agency MBS.
Indeed, once the Fed and Treasury programs end, this could cause a huge imbalance in the supply/demand equation. The Fed's support kept prices for agency MBS strong. When it's gone, spreads should gap out.
However, analysts at Barclays Capital believe there will be firm demand for mortgage paper nonetheless. They think that most of the leading fixed-income money managers are now sharply underweight MBS against their benchmark. So when spreads widen, they'll step in to buy.
In this month's column, Bill Berliner argues that the growth in subprime lending between 2002 and 2007 shouldn't hold most of the blame for the housing bubble and ensuing recession. More significant was the steady relaxation of affordability standards, which allowed prospective homebuyers to qualify for increasingly large loans. The problem, he says, was that the strong housing market covered up the dependence of these new products' performance on escalating home prices.
Outside the U.S., ABS players are getting the same message: The government will no longer serve as the market's crutch. The European Central Bank (ECB) recently started draining a major source of demand by tightening its rules for accepting ABS as security in its liquidity operations.
But, in Nora's view, the sheer volume of bank financing needed in the next few years makes securitization a necessary financing tool with or without the ECB or other government entities. Already, we're seeing market activity, with Dutch issuer Friesland Bank and Spain's Caixa Catalunya issuing an RMBS and a CLO, respectively.
In other parts of the world, government regulation is playing a bigger role. Mexico's RMBS downturn has put pressure on regulator Sociedad Hipotecaria Federal. In September, the agency made the inclusion of a master servicer in mortgage and construction-loan deals a precondition for carrying its coveted stamp. ASR's Felipe Ossa examines how the master servicer field, while benefiting from a change, is unlikely to grow much.
Also, before the holidays, Felipe interviewed Alan Elizondo, the technical vice-president of Mexico's National Banking and Securities Commission (CNBV) to discuss the regulator's securitization-related initiatives, which are unambiguously good news for players in the domestic market.
Finally, Felipe tackles a new CDO in Brazil. Yes you heard right. A CDO, and a sizable one at that, is slated to close anytime now. If that's not a sign of optimism I don't know what is.
Best New Year's wishes to you and yours,
- Karen Sibayan
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