It's fitting that the ASF conference is being held in Washington, D.C. Uncle Sam, after all, has been playing a crucial role as securitization's savior as well as working double time to alleviate the problems plaguing the mortgage market.
The Treasury Department has led the way, as Nora Colomer reports in this month's cover story, by increasing the capital available to Fannie Mae and Freddie Mac. Giving the GSEs more leeway to increase their mortgage holdings enables them to buyout more delinquent loans without selling MBS, thus alleviating supply pressure in the mortgage market.
The Federal Reserve extended a hand when it implemented its MBS purchase program last year. But it's winding down. In his column, Bill Berliner says that despite the initiative's imminent end, some of its benefits to the MBS and mortgage markets might endure for some time. One of them - lower levels of realized volatility - is here to stay.
The government is not the only one trying to solve the problems that caused the mortgage fallout. ABS industry players are also pushing to know more about the collateral backing MBS deals. In an observation, Ethan Klemperer, general manager of Experian Capital Markets, sees some good things that came out of the recent credit crisis. Securitization players, for instance, are now making changes to improve asset-level transparency and to help properly assess the risk-versus-return tradeoff of investing in mortgage pools.
Meanwhile, in his piece, 1010data Director Perry DeFelice, Jr. notes that players in the non-agency mortgage market agree that some degree of loan level analysis has become the norm. Both the capital markets and risk management departments of the institutions that survived the crisis are now more actively managing their portfolios for inherited legacy assets and newly purchased assets.
However, the extensive government and private sector efforts to thwart a mortgage market catastrophe might not be enough. Even with talks of a new-issue RMBS pipeline revival, Nora warns that the market still has to brace itself as several hundred billion dollars worth of option ARMs are due to reset between now and the end of 2011. What's more $599 billion worth of Alt-A ARMs are also going to reset between now and 2015. The crux of the problem is that many of these loans are underwater and barely affordable even at current historically low interest rates.
Like the mortgage market, student loan ABS players are watching the events on Capitol Hill closely. Legislation that would shrink the sector is currently in limbo along with the healthcare bill. This threatens the availability of student loans unless an emergency funding program is implemented.
ASR this month also focuses on what's happening in the healthier parts of the ABS market. Lawyers from Dechert highlight the growing activity in the middle-market CLO space, while my article puts the spotlight on the recent proliferation of auto floorplan transactions.
In another corner of our world, Fitch Ratings' analysts Michael Dean and Cynthia Ullrich focus on the rating ramifications of credit card issuers boosting the credit enhancement on their pools.
Outside the U.S., Felipe Ossa discusses the prospects for Latin America ABS this year, which are encouraging in some parts of the region. He covers the CIS and Turkey as well. Optimism is in short supply in the markets east of Europe, but the foundation is being laid in Turkey for activity, if not this year, then further down the road. Finally, Felipe interviews Petrobras CFO Almir Barbassa and discovers that this titanic energy producer sees a role for ABS in its massive investment plan.
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