RMBS

Heading into 2011, several Wall Street firms favor an overweight to the mortgage basis. Valuations are expected to be attractive given the muted prepayments and generally favorable supply/demand technicals.

While not quite the same as the agonies of 2007 and 2008, 2010 was another calamitous year for the mortgage and MBS markets. Here are my expectations on a variety of topics for 2011.

The improper transfer of the promissory note - the borrower's promise to pay - to the securitization trust can create havoc in the process. However, the resolution of this problem could serve to re-start the private-label RMBS market. Are the note transfer contrarians MBS reformers or charlatans?

One of the biggest challenges for the securitization industry in 2011 will be managing through the host of regulatory changes that are set to shape its future.

Recent attacks on securitization have centered on its legal soundness.

The need for national loan servicing standards has been recognized by regulators as well as securitization and servicing market participants.

Policy changes including the potential extension of the government's Home Affordable Refinance Program (HARP) in 2011 to all GSE loans can result in faster prepayment speeds on agency mortgages, said Barclays Capital in its 2011 outlook report.

Latin America's two largest markets - Brazil and Mexico - will present ABS players with different sets of risks and opportunities next year.

Russia, Turkey and neighboring emerging markets saw only scattered ABS issuance last year, and that largely depended on support from government-linked institutions, development banks or regular bank funding. Bond investors were mostly absent.

While 2010 was an all-out scramble by Democratic leaders to harness outrage over the financial crisis to push regulatory reform over the finish line, the legislative outlook for this year is quite different.