Securitization

The Bank of England (BofE) is looking less likely to extend the terms of its special liquidity scheme (SLS), which is due to end on Oct. 21.

The U.K. government last week announced measures intended to stem house price deflation and mortgage defaults. The measures would also ultimately boost the deteriorating performance in U.K. RMBS.

While global markets reel from credit compression, Mexican spreads have edged out. But that has not deterred originators from entering the market with new asset classes. Case in point: GMAC Mexicana is in the pipeline with a first-time deal backed by cash flows from loans to affiliated dealers.

It looks like the Argentine government isn't out to make friends in structured finance. The administration of Cristina Kirchner last August abolished certain tax exemptions for financial trusts. This will cut the available excess spread - after losses - in some local ABS deals by 35%, according to a report from Moody's Latin America.

The European Central Bank (ECB) revealed changes to its repo liquidity program last week. The moves are intended to make the repo liquidity option less appealing for ABS issuers.

The Ukraine's Bank Khreschatyk has issued its first covered bond, a three-year UAH70 million ($14.7 million) trade governed by local law.

As ABS industry participants scour the market for new deals, covered bonds remain a beacon of potential liquidity for the desiccative pipeline. One question, however, remains: Where are these new programs?

It goes without saying that structured products, particularly in the ABS space, are not the once attractive asset that had investors flocking to the sector.

Last week's highlight was the government's takeover of Fannie Mae and Freddie Mac. Since the announcement was made on Sept. 7, a Sunday, it led to a sharply higher open in MBS last Monday.

The beginning of September was wracked with uncertainty as Fannie Mae and Freddie Mac struggled with liquidity issues. That was until the government stepped in with a bailout plan for the GSEs. However, the government cannot stop growing fears of mounting losses at Lehman Brothers, which continued last week.

The importance of Fannie Mae and Freddie Mac not only to the U.S. mortgage market but to the worldwide economy was demonstrated last week when the U.S. Treasury Department put the two GSEs under conservatorship.

A small, although rising, number of prime jumbo mortgages are becoming seriously delinquent. According to a report released by Barclays Capital this morning, approximately 1.5% of fixed rate loans are 60 days or more past due.

With more home price information following the end 2Q08, Deutsche Bank Securities updated its outlook for U.S. home prices.

Jefferies & Co. has expanded its emerging markets fixed-income sales and trading unit. Jefferies has recently added four senior professionals in this area, including Leo Gazal, Mike Bellero and Ken Lockyer as senior salespeople based in New York, and John Gibbens as a senior trader in London.

Fixed-rate mortgage rates dropped sharply this week following the government's takeover of the GSEs.

Fitch Ratings will be introducing rating outlooks for U.S. structured finance deals.

Fitch Ratings said that credit events on Fannie Mae and Freddie Mac are unlikely to trigger large scale CDO downgrades even though both GSEs are referenced in approximately 30% of synthetic CDOs rated by the agency.

Moody's Investors Service downgraded the ratings of Residential Capital's (ResCap)senior secured bonds to 'Ca' from 'Caa2' and junior secured bonds to 'Ca' from 'Caa3'.

Delinquency rates ticked up slightly in 2Q08 for most commercial/multifamily mortgage investor groups, although they remained at the lower end of their historical ranges, according to a new Mortgage Bankers Association (MBA) report.

While there are positives associated with the placement of the GSEs into conservatorship, UBS noted that its impact on the overall housing market is expected to be modest. Analysts' outlook for non-agency MBS is on the modest side as well.