A small handful of home equity loan deals, a credit card transaction and a pending auto deal kept the ABS market from coming to a complete standstill in the last couple of weeks.
On Aug. 29, the GSAMP Trust, series 007-HSBC1, priced its senior triple-A notes at 85 basis points over one-month Libor. Goldman Sachs was the sole manager.
More recently, the Renaissance Home Equity Loan Trust came to market with an $837 million transaction, led by Banc of America Securities and JPMorgan Securities. Pricing guidance on the deal's most senior triple-A tranche ranged from 80 to 85 basis points. Unlike the GSAMP transaction, plenty of managers got into the fray, with Citigroup Global Markets, Deutsche Bank Securities and RBS Greenwich Capital all with a co-manager role.
As sparing as issuance was from that sector, some market participants expect it to quiet down even more.
"Supply will be going down," said one professional. "You need a really good deal to get much done."
Aside from the handful of HEL deals, the consumer ABS sector chimed in with a couple of transactions.
By press time, JPMorgan Securities and Wachovia Securities were readying an $869 million Carmax Auto Owner Trust transaction, according to market sources. Meanwhile, Citigroup Global Markets was in a five-year, $750 million credit card deal.
"I do get the sense that there is some pent-up demand on the consumer side, for auto and equipment deals," one trader said.
Such market quietness is giving the industry a lot of time to consider the implications of government changes to the Federal Housing Authority (FHA) program. The FHASecure plan broadens eligibility requirements for mortgage borrowers to refinance into an FHA loan (see story, p. 16). One feature stipulates that hybrid mortgage borrowers whose loans went into delinquency after the rate reset and who might apply for relief should have been up to date on their mortgage payments before the reset occurred, according to a recent Mortgage Strategist report from UBS.
Also, the FHA increased the number of loans that lenders are willing to liquidate through a method called short payoff. Under a short payoff, the mortgage lender can reduce an outstanding loan amount to a sum that the borrower can pay. The borrower also needs 3% equity to qualify for the FHA loan, wrote UBS.
The FHA allows for a simultaneous second-lien mortgage that would cover the difference between the FHA loan amount for which a borrower qualifies and the current outstanding loan, as well as the 3% equity.
The complex nature of subprime loans, plus the fact that many are securitized, makes it hard for market participants to predict the program's effectiveness.
"Most subprime loans are securitized, so the servicer, not the original lender, makes the modification," UBS wrote.
Still, a lot of ABS professionals took heart from the changes, even as many issuers continue to stand by the sidelines. Market participants are starting to shed the general perception that all borrowers whose adjustable rate mortgages have recently reset have no viable refinancing option, said one trader.
Market players are also looking forward to another potential boost from the Federal Reserve through a series of interest-rate cuts. They add, however, that the benefit might be purely psychological.
"People are confident that they will do it," one trader said. "It cannot hurt."
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