April was not our market's finest moment. It may have been Goldman executives who were in the hot seat, but at times it was as if, yet again, securitization were on trial.
My article on the Goldman grilling and its repercussions for ABS can be found on StructuredFinanceNews.com. There I talk about its possible widespread implications for future CDO litigation.
In this month's cover story, John Hintze tackles the SEC's push for further transparency in its 667-page proposal to amend Reg AB. The move is likely to fundamentally alter, and perhaps even shrink, the ABS market, at least in the near term.
These setbacks are particularly disheartening in light of the green shoots emerging in the market. Indeed, last month witnessed some post-crisis firsts - AmeriCredit brought a bold auto loan ABS wrapped by Assured Guaranty. And of course there's the much-ballyhooed Redwood Trust deal - the first non-agency transaction since 2008 backed by newly originated collateral. I cover Redwood in a story in which I talked to a few of the deal's participants. They all agree it's a good start, but whether it will bring a real revival of non-agency issuance is another matter.
The same push and pull - a mix of the positive and the negative - has seeped into the CMBS market. In one of her articles, Nora Colomer shows how the CMBS spread tightening over the last few months - which was part of an extraordinary rally across all asset classes - can't erase the fact that the commercial real estate space still has major problems. Although industry players are currently focusing on the positives, if the focus shifts to the sector's fundamentals and refinancing issues then spreads could widen.
There are more unambiguously bright spots out there. In March, Representative Scott Garrett (R-NJ) introduced a covered bond bill into the House of Representatives. Nora discusses how this latest bill - the United States Covered Bond Act of 2010 - includes a variety of asset classes that move beyond the more traditional residential loans found in European covered bonds, and specifically caters to the needs of domestic investors.
Of course there's the perpetual dark cloud that hovers over the mortgage market - homeowners who are unable to cope with their mortgage debt. Bill Berliner in this month's column argues that many proposals for principal forbearance and principal reduction miss the point by focusing almost entirely on borrowers' ability to pay their mortgage. His take: it's the borrowers' unwillingness to pay that drives defaults.
The interplay of good and bad is also evident in Europe. Although the European ABS market enjoyed a strong first quarter and spreads have tightened dramatically in the early part of the year, Greece's troubles and Goldman's case are casting a pall. Nora points out that sovereign debt concerns have caused price volatility and greater risk aversion, which have spilled over into ABS markets. What's more, the Goldman case has brought subprime back into the news, ratcheting up litigation and contagion risk.
Finally, Felipe Ossa has a extensive talk with Stefan Hruschka, an official with the Asian Development Bank. This article covers topics ranging from DPRs to microfinance, and also touches a little on how it feels to be a multilateral guarantor in world where monoline muscle is vastly diminished. And linking into Nora's covered bond story, Felipe examines the issue in Peru, where the congress is debating detailed legislation on the product. There's optimism down there that a strong framework will encourage originators to issue.
- Karen Sibayan, Editor