With new accounting rules, regulatory uncertainty, and wary investors making ABS uneconomical for issuers, pockets of the securitization market are paralyzed. Participants are forced to look at alternative funding sources, which Nora Colomer explores in this month's cover story.
Solutions range from originators resorting to more club-like deals, where risk can be shared, to banks selling portfolios of whole loans to each other. However, nothing can replace securitization as the most effective way to promote mortgage growth and, at the same time, provide an efficient way for companies to shift risk.
The ABCP market - a leading funding source for corporations ranging from AmeriCredit Corp. to Dean Foods - is one of the most contested battlegrounds in the ABS space. John Hintze details how banks running ABCP conduits are continuing discussions with regulators in an effort to temper new capital rules that threaten to shift assets to non-U.S. banks and cripple what has been a successful short-term funding source for the country's companies.
The accounting changes that have beset ABCP conduits have also compelled the GSEs to change their loan buyout policies so that these purchases no longer have an effect on the GSEs' income statements. Bill Berliner discusses the ramifications of this in his column. Meanwhile, Sally Runyan focuses on the impact of these same changes on MBS prepayment speeds and coupon swaps.
As shown by the overall securitization market and the example of ABCP, the government seems to be failing in its effort to regulate the financial markets without stifling economic growth.
The Treasury, for instance, has been struggling with its Home Affordable Modification Program (HAMP). Despite the changes that the government agency has made to HAMP, there are still many borrowers stuck in the trial modification stage and unable to qualify for a permanent loan mod, as I detail in my story.
And nowhere are problems in the economy more apparent than in commercial real estate. Poonka Thangavelu shows what a difference a year, or three, makes. Back in 2007, CMBS delinquencies were at historic lows. Fast forward to 2010, and they keep hitting new highs. And, as Poonka predicts, it's going to get worse before it gets better.
Things look ugly in Europe as well. The Greek government's debt is rising, while its capacity to service that debt might be in trouble. Nora explains how this has filtered into the ABS world as rating agencies have downgraded Greek securitizations to account for steeper sovereign risk.
Despite the downcast securitization picture presented by other parts of the world, emerging markets in Latin America are showing the true-sale approach still works and is useful for many companies seeking funding. Felipe Ossa looks at how Colombian auto loan securitizations might be coming to market for the first time in the second half of the year. The development springs from originators' search for alternative funding sources as well as a new law authorizing the establishment of non-mortgage securitizers. Auto loans are also on the agenda in Mexico, where GMAC is planning its first ABS in that asset class later this month.
It just goes to show that ABS still has a place. Now if only U.S. players can figure out how to make structures work in the face of regulatory obstacles.
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