Securitization

The fight over a capital surcharge for the largest banks took center stage in 2011, at least in the international Basel III process, as the chief executives of some major banks publicly clashed with regulators over the issue.

The private-label MBS market might get a boost from two companies that are planning to issue in 2012 — Redwood Trust, the only issuer of non-agency MBS securitizations post-crisis, and Two Harbors Investment Corp., which is partnering with Barclays Capital.

The top 10 sellers of mortgages to Fannie Mae and Freddie Mac pay 20 basis points in guarantee fees compared to 30 basis points for firms outside the top 100, according to a new report from Keefe Bruyette & Woods (KBW).

The Loan Syndications and Trading Association (LSTA) on Dec 29 released the results for its 2012 Loan Market Survey (for a full copy of the slide presentation, please click the link below).

After the passage of the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765), the Federal Housing Finance Agency (FHFA) stated there will be a 10 basis point GSE g-fee increase effective April 1, 2012.

The leveraged loan market experienced a lackluster year in 2011, with returns down and bids float in both the U.S. and Europe, according to Markit.

DBRS released a report today regarding the Attorneys General settlement with servicers. The rating agency said it will continue to monitor the servicing industry regarding the final settlement terms and the effect the settlement will have on the secondary market.

MGIC Investment Corp. at yearend contributed $200 million of cash to its mortgage insurance subsidiary as two important capital waiver deadlines expired.

Long an adjunct of the insurance and reinsurance sectors, the catastrophe bond market appears primed to become a more mainstream allocation alternative in 2012. This shift is prompted by issuers' growing capital needs and the incentive that the risk from natural disasters it mitigates is not correlated with the manmade financial variety. While 2011 new-issuance volume is anticipated to end up just short of last year's numbers, and outstanding cat bond issuance remains about the same, indications point to a strong 2012.

In the preliminary ASR Scorecards database public lead manager rankings for full-year 2011, JPMorgan Securities maintained its No. 1 rank from last year to capture the top spot again this year with a 16% market share and $12.03 billion sold. For the full year 2010, the bank held the top slot with a 15.6% market share $8.36 billion sold.

The passage of the payroll tax holiday extension in December was, in my mind, a watershed moment for the mortgage and MBS markets. For the first time, Congress instituted a tax on mortgage transactions, to be collected by Fannie Mae and Freddie Mac. In this light, the operative question for regulators and policy makers is simple: "What are we trying to accomplish?"

To understand the role private-label mortgage financing, MBS players must first wait and see what the government's next move will be. It is not that securitization is not happening. It is just that all the activity in the market is via the GSEs.

The full implementation of Basel III is still years away, but it is already impacting key areas of the securitization market such as mortgage servicing rights. The impact of its liquidity ratios on market participants will likely be felt as early as this year.

Last year, securitization players found themselves stumbling towards recovery, as new regulations and a weak economy posed one hurdle after another for deal makers.

Casting a cloud over the CMBS sector for 2012 is an overhang of about $55 billion in CMBS loans that are coming up for refinancing. Industry participants are watching to see how these loans will fare. These mortgages form part of an estimated total of $365 billion in commercial real estate-backed loans coming due in 2012, according to CMBS data provider Trepp.

Structured finance players in Latin America pushed through 2011 with few scars, especially given the turmoil pounding European markets.

The need for private capital to return to mortgage financing is a major discussion point in the future of U.S. housing. REITs are an ideal vehicle for bringing in that private capital. However, before this can occur, a couple of things need to happen, said Calvin Schnure, a mortgage market economist at the National Association of Real Estate Investment Trusts (NAREIT).

Manager Activity: Autos Book Runner Amount (US$ Mil) Rank Mkt.

According to Standard & Poor's 2012 CMBS outlook, as much as 63% of $19 billion in 2007 vintage five-year CMBS loans coming due in 2012 could fail to refinance in case borrowers are not willing to put in additional equity. The rating agency bases its estimate on the $13.3 billion of these five-year CMBS loans for which S&P has adequate net operating income data. Based on this balance, S&P expects about $7 billion to $8 billion of 2007 vintage loans to face refinancing difficulties.

In the emerging markets at the edges of Europe, 2011 did not generate much excitement for global structured finance players; many of the deals that did go cross-border were purchased by multilateral banks. This is understandable given the crisis engulfing their neighbors.