The financial crisis has brought a renewed consciousness to ABS investors - they need to get to the nitty-gritty of what they own. Nora Colomer's article this month focuses on this very issue.
Various securitization information providers have developed technology to make sense of all the granular data available. The aim is to increase transparency in ABS deals.
When times were good, this was not so important. But now that the market has seen the worst in credit performance, making sense of the prodigious amount of borrower information - which, as Nora points out, has always been available - takes on a new meaning and urgency.
She talks to information technology experts at data providers to find out what they are doing to cast more light on borrower behavior.
Apparently, investment firms are now taking matters into their own hands. They have been creating models with the data providers' input so they can analyze their own securities.
My story looks at the "retention" or "skin in the game" requirement included in proposals currently pending in both houses of Congress. Even though ABS players say that this rule, if implemented, will unduly constrain consumers' access to credit, many believe that the 5% retention requirement is here to stay. The populist appeal of the "skin in the game" concept, sources say, overrides the fact that the rule will likely work against the government's stated aim of increasing credit availability.
Even credit card companies are feeling the brunt of policy making. John Hintze says that investors eager for more lucrative credit card paper might remain disappointed. This is at least until regulatory and accounting issues are resolved, and even then, many credit issuers may simply not need the financing. Meanwhile, pricing quotes on card deals should vary widely, especially as one goes down the capital structure.
But the securitization industry doesn't always see the government as the enemy.
In terms of the MBS market, the Federal Reserve has been extending a helping hand by buying up supply in the sector, and thereby keeping spreads tight. However, the Fed's MBS purchases are scheduled to end in 1Q10. Sally Runyan warns that the market has to brace itself for not only the exit of a large buyer, but also for interest rates that will be forced higher by heavy Treasury issuance and the withdrawal of government stimulus programs outside of MBS.
On the global front, the shock out of Dubai is reverberating in the structured finance sector of the region - but the impact isn't so cut and dried, Felipe Ossa reports. While a few deals could be further stressed by the knock on effects of Dubai World's default, there's a nascent optimism that the economics for ABS might be creeping back into favor.
By contrast, there seems to be more positive news from Europe. Nora reports on the recent uptick in primary European issuance, which seems more than just a one-off event. Savita Iyer also writes that CLOs have money to spend as a result of the wave of loan refinancings in the last several months. But here's a caveat: it might take a while before these vehicles become active again as investors.
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