Yield is King in the Battle-Scarred Market
This month ASR tackles a wide range of topics, from thorny issues such as regulations and eminent domain to the delayed onset of securitization of REO-to-rent homes.
But through the unwelcome noise and frustrated expectations, two stories show that investors are serious about securitization. As long as yields are just as serious.
One unmistakable sign that a little extra spread's going a long way is the return of looser-structured CMBS. As John Hintze examines in the cover story this month, one can look at UBS Commercial Mortgage Trust 2012-C1, launched this spring, to see how investors are willing to accept higher LTVs and even an IO feature in exchange for a bump-up. That very demand has brought spreads in for different tranches of CMBS, provoking concerns that the tightening has been, in the words of RBS Securities, "too far and too fast."
Then there's the incredible shrinking market of auction rate securities (ARS). Nora Colomer reports that thanks to the combination of juicy yields and the security of a government guarantee on the underlying collateral, student loan ARS are drawing in secondary buyers, and allowing holders who have been stuck with the product for years to find an exit strategy. Primary issuance can still be a tough sale, though.
In one of my stories this month, I explore how it took Paris-based cooperative finance firm Groupe GIAC a good two years to finally launch the first French CBO since 2008. When the market was more welcoming, the shop hardly broke a sweat closing six similar transactions.
For my other story I discuss how the industry in Europe is leery of rules that put certain securitization activities under the rubric of "shadow banking." The ECB defines shadow banking as activities of credit intermediation - where there's a third party standing between lender and borrower - as well as liquidity and maturity transformation that lie outside the regulated banking system. Structured finance players take issue with more rules and say the very term "shadow banking" paints activities in its purview with a sinister brush.
Back in the U.S., Bill Berliner weighs in on the debate over using eminent domain to seize underwater mortgages. Echoing the official stance of our industry, he argues that this approach would not only damage the MBS and mortgage markets, but also potentially hurt the very same people it aims to help.
Also in the housing market, Nora's second piece examines how players will have to wait for the securitization of REO-to-rent homes. The difficulties acquiring these properties have delayed the onset of this potential market, but investors, rating agencies and other participants are still positioning themselves for its eventual emergence.
Finally, as Sally Runyan reports, mortgage prepayments are expected to jump in August from July, in part because of more "collection days" during which mortgage holders can finalize a refinancing.
Overall, this issue is not so different from most of the year so far - a lot of copy about housing and regulation, and the increasingly aggressive search for yield.
As election season heats up, we'll see if the fall has more of the same in store for our industry.