While the FDIC prepares to take away the Safe Harbor privileges from ABS issuers, it has reaped the rewards of securitization by coming to market with three structured note offerings over the last month.

It begs the question: is the FDIC sending mixed signals?

The agency's officials have always maintained that securitization works, and if they've been playing bad cop a lot lately it's for the industry's own good.

In this month's cover story, Nora Colomer gives the FDIC a chance to elaborate. And they do, arguing that the industry needs to develop a set of best practices based on transparency and sound underwriting.

Meanwhile, players are upset that regulators have been squeezing the juice from the student loan market. My article this month focuses on the elimination of FFELP loans, which will suck the oxygen out of student loan ABS.

It's true that down the road, private student loans might play more of a role as a result. But many of these lenders will have to come up with ways to originate and service in a cost effective manner, which won't be so easy.

In his column, Bill Berliner discusses the Dodd bill and argues that this particular legislation's focus on "skin in the game" is unfortunate. There are plenty of examples of banks that kept exposure to their securitized assets before the crisis and paid for it. Countrywide and Washington Mutual, for instance, had held on to a good amount of product backed by nonperforming assets, a move that helped precipitate their downfall.

All these new rules might just be the government's way of telling lenders to get back to basics. This topic is tackled in an observation this month by Kenneth E. Kohler, a partner at Morrison & Foerster. He says the portfolio lending model prevalent in the 70s will come back as policymakers insist on adopting measures that will undo "the risk-spreading and capital-attracting virtues of securitization."

Despite the criticism, the government can't be accused of not trying to help the market. Just recently the Treasury Department introduced enhancements to the Home Affordable Modification Program (HAMP) that would reduce mortgage payments for the unemployed and refinance underwater borrowers. Just before these improvements were announced, Bank of America also launched an initiative giving certain HAMP-eligible borrowers the option of principal forbearance.

The jury's still out on how much good these moves will do troubled borrowers, but the impact on bondholders, as John Hintze details in his story, will be mixed at best and will depend on where one is in the capital structure.

In other parts of the world, there seems to be more enthusiasm for ABS, even real estate-related securitizations. In Brazil, investor appetite has increased for CRIs - certificate of real estate receivables - which, theoretically at least, should push originators to seek this funding source. Spurring the interest are real estate investment funds (FIIs), which have more incentives now to buy CRIs after regulations were changed last year.

However, it's not all rosy for real estate securitization in this region. The recent 8.8-magnitute earthquake that rocked Chile on Feb. 27 left damage that could seep into ABS deals, sources said, specifically offerings backed by residential mortgages and lease-to-own contracts.

 

- Karen Sibayan, Editor

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