Last week's dollar-for-dollar residuals proposal by the Federal Deposit Insurance Corp. (FDIC) would have minimal, if any real impact on most subprime securitization entities, market sources said.
"The dollar-for-dollar portion of the proposal will have no real impact because the FAS-125 gain-on-sale' will be the approximate amount of the residual and this would manufacture the required capital," one source said.
In fact, the dollar-for-dollar proposal is less aggressive than what was offered in the recourse proposal earlier in the year, where residual assets would actually be deducted from core capital.
Further, the regulators also proposed putting a 25% limit on the amount of residual assets that can be used to calculate core capital, which would impact securitization driven monoline banking entities the most, like Advanta Corp. or MBNA, the source said.
