CDOs

Countrywide Financial Corp. plans to enter the reverse mortgage market by yearend. The mortgage giant intends to dominate the sector once it gets its feet wet, according to Countrywide's Chairman and Chief Executive Angelo Mozilo. This is a strategy that could mean a sizable increase in reverse mortgages floating about the secondary market. The Calabasas, Calif.-based lender was driven to enter the sector because of the product's growing secondary market acceptance as well as its growing pool of potential customers, who are homeowners aged 62 and higher.

The ABS market had a busy week, one wherein the home equity loan market shared the limelight with the auto loan, credit card and business loan sectors. While ABS professionals expected the market to clear up to $15 billion in deals for the week, issuers and underwriters completed about $9 billion by Thursday afternoon.

None of the big three rating agencies have downgraded any securities issued by Bayview Financial, a privately held mortgage finance company based in Miami, in light of the realization that its securitizations were rated using what was at times erroneous loan information. A senior salesperson and limited partner in charge of Bayview's residential loan acquisition sales force was fired in late March under allegations of altering credit information on loans he acquired for the company in order to earn higher commissions, according to the company. The employee primarily increased borrower credit scores, but also changed property types and occupancy codes, among other items, the firm disclosed.

In what is not likely to come as a huge surprise to CDO market participants - Fitch Ratings said last week that performance of recently issued deals can be expected to closely track that of the subprime mortgage market. As subprime mortgage lenders over the last several years scrambled to place a record number of borrowers into loans, so did CDO managers rushed to pack the subprime RMBS securities into deals.

Bear Stearns plans to bring to market in September an $884.4 million static commercial mortgage-backed resecuritized CDO. The deal, G-FORCE CDO 2006-1, is backed primarily by the refinancing of G-FORCE CDO 2003-1 and certificates from the re-real estate mortgage investment conduit G-FORCE 2005-RR2. G Funds Asset Management, which is jointly owned by Capmark Financial Group and Goff Moore Strategic Partners, is the collateral manager for the deal. LaSalle Bank is the trustee.

Following the approval of a merger by both The Security Industry Association's board and The Bond Market Association's board in June, the companies announced last week that their respective member firms have also voted overwhelming in favor of merging the two organizations to create the Securities Industry and Financial Markets Association (SIFMA). According to a recent joint press release, the SIFMA will comprise of three groups, the capital markets group, the private client group and the asset management group.

Slower issuance might characterize the U.S. ABS market, resulting in break-even numbers at best by yearend. The student loan sector, for its part, however, is well on its way to having another record-breaking year of production.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 6,351.4 1 16.1 14 Wachovia Corp 6,106.4 2 15.5 11 Citigroup 6,027.5 3 15.3 12 Barclays Capital 3,626.9 4 9.2 6 Deutsche Bank AG 3,229.1 5 8.2 9 HSBC Holdings PLC 2,389.3 6 6.1 3 Royal Bank of Scotland Group 2,169.3 7 5.5 5 Banc of America Securities LLC 1,925.9 8 4.9 3 Merrill Lynch & Co Inc 1,847.5 9 4.7 4 Credit Suisse 1,550.0 10 3.9 3 Industry Total 39,395.0 - 100.0 48 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch & Co Inc 20,899.6 1 13.9 26 Citigroup 19,408.6 2 12.9 33 Deutsche Bank AG 16,561.1 3 11.0 22 Banc of America Securities LLC 11,303.1 4 7.5 26 Bear Stearns & Co Inc 9,133.2 5 6.1 19 Wachovia Corp 9,013.1 6 6.0 20 Credit Suisse 8,634.2 7 5.7 15 UBS 8,224.1 8 5.5 38 Royal Bank of Scotland Group 6,499.7 9 4.3 8 Morgan Stanley 6,308.8 10 4.2 29 Industry Total 150,329.3 - 100.0 294 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Banc of America Securities LLC 10,235.0 1 25.8 13 Citigroup 8,982.0 2 22.6 13 JP Morgan 7,824.7 3 19.7 18 Deutsche Bank AG 2,924.9 4 7.4 8 Morgan Stanley 2,289.1 5 5.8 4 Barclays Capital 2,260.1 6 5.7 6 Credit Suisse 1,735.1 7 4.4 8 ABN AMRO 1,000.0 8 2.5 5 HSBC Holdings PLC 1,000.0 8 2.5 1 Merrill Lynch & Co Inc 500.0 10 1.3 2 Industry Total 39,700.8 - 100.0 58 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Deutsche Bank AG 1,250.0 1 19.7 2 ABN AMRO 1,250.0 1 19.7 2 Lehman Brothers 1,250.0 1 19.7 2 Royal Bank of Scotland Group 1,000.0 4 15.8 2 Banc of America Securities LLC 1,000.0 4 15.8 2 Merrill Lynch & Co Inc 300.0 6 4.7 1 Citigroup 300.0 6 4.7 1 Industry Total 6,350.0 - 100.0 5 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Lehman Brothers 35,328.7 1 11.0 80 Royal Bank of Scotland Group 30,137.4 2 9.3 74 Countrywide Securities Corp 30,132.0 3 9.3 49 Morgan Stanley 27,249.1 4 8.4 28 Credit Suisse 26,016.6 5 8.1 70 Deutsche Bank AG 22,889.2 6 7.1 52 Bear Stearns & Co Inc 20,093.7 7 6.2 65 Merrill Lynch & Co Inc 19,954.9 8 6.2 33 Goldman Sachs & Co 19,000.7 9 5.9 40 JP Morgan 16,189.5 10 5.0 37 Industry Total 322,752.8 - 100.0 647 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 7,390.8 1 19.3 10 Deutsche Bank AG 6,320.7 2 16.5 9 Merrill Lynch & Co Inc 3,420.1 3 8.9 3 Credit Suisse 3,306.5 4 8.6 6 Goldman Sachs & Co 2,941.3 5 7.7 4 Lehman Brothers 2,834.1 6 7.4 2 Morgan Stanley 2,568.2 7 6.7 3 Banc of America Securities LLC 2,550.5 8 6.6 4 RBC Capital Markets 2,179.0 9 5.7 4 Wachovia Corp 1,610.0 10 4.2 1 Industry Total 38,396.5 - 100.0 30 Source: Thomson Financial

auto ABS 9% credit card ABS 9% enterprise finance 0% equipment ABS 2% real estate ABS 71% structured settlements 0% student loan ABS 8% trade receivables 1%

Considering that the Basel II recommendations for bank capital requirements affects about two dozen banks - at the most, according to banking experts - it sure is causing a stir in the industry. Capital markets observers, however, say the revised set of recommendations, might have, only minor effects on securitization.

The auto ABS sector is in reverse gear, and threatens to suppress total traditional asset securitization numbers for 2006, according to Wall Street estimates. Issuance will reach $675 million for all of 2006, about 6% shy of 2005's volume, according to recent estimates from Citigroup Capital Markets.

Last Wednesday, participants in the ABX.HE for the first time ushered in a fresh series of deals with what seemed to be little fanfare. While not everyone shared the same view on credit characteristics underlying the new index, called the ABX.HE 06-2, many felt that market technicals would drive much of the early spread activity. As of last week, a number of sources were expecting ABX.HE 06-2 spreads to settle at a thinner level than those on the initial ABX.HE 06-1 index - particularly at the lower end of the capital structure.

The new ABX index rollout last Monday might have been the highlight of an otherwise quiet week, but it did not do much to elevate the amount of paper issued. Although $13 billion in deals were in the market last week, just $2.4 billion priced by Thursday.

If First Marblehead Corp., the Boston-based private student loan finance company, succeeds in buying Union Federal Savings Bank as it announced last week, there is a chance that it could scale back its securitization program.

Fitch Ratings last week introduced what it is calling a first-of-its-kind synthetic CDO risk modeling tool. The program - called RAP CD - is the result of a year's worth of work by a London-based team of analysts led by Group Managing Director Kimberly Slawek. It is said to be unique because it allows investors a better means at which to anticipate and manage portfolio volatility. So far, the product only works for CDOs that use corporate credit default swaps, although the ability to assess risk with asset-backed derivatives is on the way, according to the rating agency.