As securitization players seek out new collateral, their relationship with the government has lurched between friend and foe.

For now at least, in the mortgage market we appear to be in a friend phase, with RMBS investors embracing the Federal Housing Finance Agency's recent REO-to-rent initiative.

Bondholders can now line up for the chance to take part in this program, which lets them purchase, in bulk, the government's stock of REO homes and rent them out.

While it's still unclear how this collateral will be converted into securities, investors at the recent ASF conference showed a keen interest in the appearance of a major new collateral source.

In this month's cover story, Nora Colomer closely examines the government program and how the process of securitizing this asset class might work.

But not everything's rosy for RMBS investors. In Nora's other story about the attorneys general settlement for $8.5 billion with the country's five largest servicers, she details how banks might choose to modify the loans within MBS trusts. The banks would receive monetary credit for performing modifications on these loans at the expense of investors in the trust. In essence, they would be using investors' money to settle their claims with the state. Banks are also feeling the heat though.

Bill Berliner in his column this month points out that a number of large mortgage players have dramatically scaled back from the sector - names like Bank of America, GMAC and Citi. The retrenchment can be blamed on the unprecedented challenges, mostly regulatory, that the mortgage industry is facing. For instance, Bill argues that the contraction in these banks' correspondent lending channels can be directly attributed to elements of Basel III that limit the amount of servicing that can be held by banks without incurring onerous capital treatment.

On the brighter side of things, the issuance of CLOs that are true privates is growing, even attracting overseas lenders, according to a story this month by John Hintze. Private CLOs are structured deals in which a bank usually lends to a special-purpose vehicle that is set up by an asset manager utilizing the financing to buy leveraged loans, typically from middle-market firms. These deals offer a viable alternative to warehouse loans.

Meanwhile, necessity has pushed Brazilian bank originators toward creating more and bigger mezzanine tranches in their securitized deals. Apparently there are few alternatives for issuers who want to grow their portfolios. However, there might be some resistance from the buy side, where crowd keen on the mezz risk might be fairly limited, as Felipe Ossa explores in one of his articles this month.

In his other piece, he examines the rash of buybacks by European originators over the past two months. The two questions Felipe tackles are what fueled this phenomenon and whether the conditions are ripe for more.

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