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DETOX Act Is On

Industry talk and most headline news keep debating about how to unclog the marketplace and ensure those so-called toxic mortgage assets are taken care of. Whether the detoxifying process is conducted by the government, private investors or by cooperative public-private efforts, it seems to be less conflicting than the real key to this process: asset valuation.

It certainly is not an easy task to price such assets and even more difficult to make that price attractive to investors so liquidity returns to the market and toxic assets are off banks' books.

Opportunities for both buyers and sellers include SecondMarket. The New York-based online marketplace of illiquid assets is expanding to accommodate demand by adding products and staff. Executives say their services represent a complementary tool to government efforts to revitalize the securities market. Hundreds of firms "have expressed interest" in purchasing residential and commercial MBS, whole loans and CDO paper.

Efforts to detoxify the marketplace are making some insiders more optimistic, even if in the short term. They say it is possible to see the now bogged-down private-label mortgage-backed securities market loosen up a bit - thanks to the government's Public-Private Investment Plan and the Financial Accounting Standards Board's mark-to-market action. The move has affected residential MBS' pricing and at least one executive said he would put 60%-to-40% odds in favor of an upturn. It remains to be seen if efforts will actually help generate more liquidity into the market and give a confidence boost to investors in the long term. Center for Audit Quality is concerned about challenges in asset valuation. In a letter to the Financial Accounting Standards Board it stresses how critical it is to improve financial reporting and to fairly estimate illiquid assets.

Other tools available include Asset Services LLC's "Conditioned Valuation Model," an automated valuation model and broker price opinion.

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