The ABS market has seen a flurry of transactions over the summer - a departure from the season's historical doldrums.
We can thank TALF for that, even if there were a few deals issued outside the program.
While CMBS hasn't had the same traction - indeed, there's been hardly any activity - players in the asset class cheered the decision by the Federal Reserve and the Treasury to extend TALF for newly issued CMBS through June 30, 2010, and for newly issued ABS and legacy CMBS through March 31, 2010.
Even with TALF's longer life, the market can't help but look beyond its termination.
Hence the question on everyone's lips: Can the ABS market outlast TALF?
Gabrielle Stein finds that optimism about the extension is tempered by anxieties of a post-TALF world. Jerry Marlatt, senior of counsel at Morrison & Foerster, sums up the prevailing view: "Until there becomes a robust market out of TALF, it will be hard to not have the program."
Echoing the consumer side, the mortgage industry is facing the prospect of diminished government support. Sally Runyan discusses the impact of the Fed buying less than the $1.25 trillion in MBS by year end as announced. Analysts believe it makes sense for the Fed to slow purchases gradually rather than ending the program abruptly at the end of '09. This would give the Fed the flexibility to make additional investments in 2010 if the need arises.
The future of the GSEs, which are keeping the MBS market afloat, is also a big question mark. In my story, I talk about the likelihood of these institutions morphing into government-owned mortgage insurers without an arbitrage portfolio. I also consider the probability of these agencies liquidating, the chances of which Wells Fargo analysts estimate at between 30% and 50%.
As further proof of the current U.S. mortgage market's dependence on Fannie and Freddie, Bill Berliner in his monthly column looks at the uncertain future of non-agency lending. Berliner says that the lack of a securities market outlet for loan production means that almost all loans ineligible for agency execution must be held by lenders.
On the European end, Nora Colomer looks at government and regulatory issues that have impacted the European ABS market, chief among them Basel II's finalization and the European Central Bank's (ECB) repo facility that has funded large volumes of triple-A-rated ABS bonds. Separately, Nora speaks to Mike Culhane from the Oakwood Group about how the firm is finding a successful niche as a servicer in the U.K.
She also looks at some of the U.S. states and cities that have reportedly considered securitizations as a possible funding solution for budget shortfalls, including California.
Finally, Felipe Ossa revisits Russia and how reasonably good RMBS performance in the currently dire market is still not enough of a reason for market participants to dive back in. And the Bank of Russia, it appears, hasn't provided the kind of jolt that the ECB has given Western Europe deals. Elsewhere in the globe, Felipe examines the stakes facing ABS investors in Mexico's Metrofinanciera. Now that the company is unlikely to put back the funds diverted from the issuing trusts, and deals have either defaulted or are on the brink, these bondholders may find they're in the same boat as everyone else.
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