With the government nearly monopolizing mortgage origination, players are asking themselves: How do private companies create "affordability" products for non-prime borrowers and do so by funding themselves through a viable ABS market?

Indeed, developing a private-label MBS market is the key to a broader access to homeownership as well as to a more active securitization market, as Nora Colomer demonstrates in this month's cover story.

To generate volume, originators must extend credit to prospective homeowners who might have less-than-stellar credit profiles, Nora says.

As RBS analysts aptly put it: "The current environment has made cheap credit available to high credit quality borrowers and drastically reduced mortgage credit to everyone else."

Exacerbating the anemic pace of origination are capacity constraints on mortgage lenders. In his column, Bill Berliner discusses problems at mortgage lenders as one of the major reasons for the insensitivity of consumer mortgage rates to declining bond yields, which has direct negative implications for the housing market. Bill says that if the spread between these two were closer to its average level, the Freddie Mac survey rate would currently be 35-40 basis points lower, giving a boost to home affordability. Unfortunately, he does not expect mortgage rates to tighten versus market rates any time soon. In fact, it could still widen, sucking yet more vitality from housing.

Articles in this month's issue argue that increasing homeownership in the current environment is harder than it seems, as roadblocks continue to mushroom. How can RMBS deals be executed, for instance, when issuers and investors have fundamental disagreements about prospective SEC rules on information disclosure?

John Hintze in an article explores a pressing issue: the lack of common ground between opposing sides on the SEC proposal that requires issuers to provide an electronic version of the waterfall structure for each of their deals written in a language that would be downloadable from the Internet. Issuers are against it as it might expose them to liability for the accuracy of their models, while investors are keen to have access to this type of data.

The opacity around many of the regulations governing ABS deals have further hindered many issuers from coming to market. In my story this month, I explain that the FDIC might have shed light on how securitizations would qualify for its Safe Harbor provision, but there are still many questions. For example, what exactly is the Safe Harbor's scope? Would existing master trusts be grandfathered into the new rules?

In Europe, regulation is also putting a damper on things - at least on European ABS investors who are now restricted by Rule 122a. The new rule lays out explicit penalties if a European credit institution doesn't obtain enough data on an ABS that it owns.

However, there's one place where issuers and investors can flex their muscles - Turkish DPR deals. On both sides of the equation, players have chosen to take out the wraps from these offerings as they no longer add value. Felipe Ossa shows who's been unwrapped, how they've done it, and what the knock-on effects of de-wrapping exchanges might be.

 

- Karen Sibayan, Editor

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