Securitization

The group of hedge funds that sued MBIA and its insurance subsidiaries over their restructuring continued to make their case last week, arguing that its allegations of a fraudulent conveyance should not be dismissed.

In reaction to legislation enacted last week, credit card issuers are expected to retool their operations in a host of ways — not all of them obvious.

Freddie Mac has begun marketing its first multifamily securitization package as part of an effort to increase liquidity in the apartment loan sector.

The American Securitization Forum (ASF) held its Sunset Seminar last week reporting on the progress of the Term Asset-Backed Loan Facility (TALF) program just as the Federal Reserve announced it would incorporate legacy CMBS assets as part of the CMBS leg of the program.

The bottom line, said Deutsche Bank Securities analysts, is that "[Federal Reserve] demand is the only factor keeping mortgages at this very rich level." How rich? They calculated FNMA 30-year 4% MBS has an OAS of around negative16 basis points to both swaps and Treasurys, Libor ZV of 67 basis points and Treasury ZV of 60 basis points.

Government actions to assist the ABCP market — including the Asset-Backed Commercial Paper (ABCP) Money Market Mutual Mutual Fund Liquidity Facility (AMLF) and the Money Market Investor Funding Facility (MMIFF) — are helping to stabilize ABCP and other short-term instruments, Fitch Ratings reports.

The Treasury Department has agreed to invest $7.5 billion in GMAC Financial Services, the parent company of the nation's sixth largest residential servicer.

The Washington State Investment Board (WSIB) has filed a lawsuit against Lehman Brothers in an attempt to recoup more than $100 million in investment losses, the plan announced this week.

Manager Activity: AutosFull Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market

A recent article in the Washington Post noted that the Obama administration is engaged in active discussions to create a regulatory commission "that would have broad authority to protect consumers who use financial products," including mortgages.

At the start of 2009, the formula that would save securitization began with government intervention. Six months down the line, the U.S. and European markets have seen some results. For Europe, the story has naturally been fragmented or on a country-by-country basis where some governments pledging more support than others.

While much of the focus has been placed on U.S. and U.K. government initiatives, Continental Europe has also made strides to implement measures to alleviate the economic pressures on the market.

In the current pantomime of financial regulatory turmoil, the villain of the piece is easily cast - securitization. Even the relative obscurity of the word has added to its perceived villainy. A difficult word to pronounce for the uninitiated, it has been booed and hissed at by politicians of all sides. The Turner Review, published on March 18, firmly places securitization - at least in its more complex forms - at the heart of the current banking crisis. But does it deserve its reputation?

As the turmoil in global financial markets continues to affect financial institutions around the world, it is increasingly evident that the asset repurchase facilities provided by central banks have become a lifeline for banks struggling to raise capital in the current climate. In a market devoid of its traditional investor base, originators and arrangers of securitization transactions within the Eurozone have come to rely heavily on the European Central Bank's (ECB) asset repurchase or "repo" facility which allows (among other assets) ABS to be used as collateral for funding.

The deadlock regarding securitization activity in Europe still persists. While pressure on credit markets eased significantly since March, ABS spreads did not follow suit! Given the rapid pace of spread tightening and sentiment changes in the credit universe during the last couple of months, the jackpot question this spring from a credit risk perspective regards timing: Will the credit crisis fade sooner than anticipated or do markets face another bull trap? And will the ABS market keep its outcast status or will there be a rehabilitation?

In recent months, portfolio managers of cash flow CLO vehicles have been faced with the unenviable task of keeping their CLOs afloat in an environment in which bank loan prices in the global loan markets have declined to unprecedented levels. This task has become increasingly difficult, due in large part to certain provisions in the underlying CLO documentation that, in today's illiquid market, no longer operate as intended. At a time when it is more important than ever for managers to actively manage the credit risk in their CLO portfolios, CLO managers have suddenly found their hands tied by provisions that, while initially conceived to safeguard the credit quality of CLO portfolios, now serve as a disincentive for managers to replace credit impaired loans with stronger ones. This article will examine the dilemma confronting CLO managers who wish to improve their portfolios by trading rapidly deteriorating loans for better-performing so-called "deep discount" loans.

On April 9, around the time the future-flow world was closely tracking troubled Kazakh banks, the International Finance Corp. (IFC) held an internal seminar on the product.

European commercial real estate and European CMBS continue to feel the effects of the events of last year when credit contraction, asset-value declines, and dislocation throughout the global financial systems began to show their effects in European CMBS through rising rates of loan defaults. This article looks at the performance of the market since 2008 and considers some factors that are likely to be relevant in 2009 and that we review, among others, as part of our credit analysis of securitized pools or our assessment of the counterparty risk in the transactions we rate (all statistics in the article refer to 2008 unless otherwise indicated).

Over the last year, laissez-faire has become seriously dated.

At the end of April, the Obama administration announced modification incentives for second lien loans under the Hope for Homeowners program.