It's a concern that years have passed and new-issue private-label RMBS are still pretty elusive. But with lower loan limits approaching this fall and other securitization alternatives moving forward there is more momentum in this area than some think.
“Areas like motorcycle, auto, and equipment ABS...are back to functioning markets,” American Securitization Forum executive director Tom Deutsch told attendees at one of the group's seminars earlier this summer. Some could argue they are even back to really normal types of issuance volume in what is an overall down economy, he said.
Also, “There have been a couple of global RMBS issuers who have tapped the U.S.,” said David Kucera, managing director, head of U.S. securitization for Bank of Montreal's U.S. securitization business (BMO Capital Markets), during the seminar.
In addition, he noted, “Mortgages are actually getting securitized in Canada, in some ways because the mortgage problems there were not anywhere close to what they were here, so investors...are willing to put more capital in the market.”
Back in the U.S., new commercial mortgage-backed securities issuance continues to have a consistent presence, at least in the 144A market, Edward Fine, a partner at Sidley Austin, noted during the seminar. There have been roughly 20 conduit deals and also some single-borrower deals.
And there have been new issue private label repackagings of RMBS in the United States, as well as securitizations of distressed product as well a Redwood's occasional new issue jumbo deals.
Even new U.S. PL residential mortgage-backed securities are not nonexistent, of course.
But as Fine puts it, when it comes to the “bread-and-butter stuff we used to do” (apart from the occasional Redwood deal), the market for PL RMBS is still something that “is going to have to be rebuilt from the ground up.”
Fine said he could not predict when that is going to happen, whether it is going to happen, or what volumes it might involve.
“Ultimately I think it will be the market making the judgment with a healthy dose [of input] from the regulators in Washington and the states,” he said.
One of the factors that will have to be worked through as the market determines the new issue PL RMBS market's fate is “obviously, you need product and that is going to be a function of economic conditions, for sure. It's going to be a function of loan underwriting, but it's also interestingly going to be function of the originators themselves at least in one respect, their treasury function.
“Right now they are originating very high quality product and product they are very happy to keep on their balance sheet, particularly since the cost of funds for a bank right now is practically zero,” he said.
“It's a very attractive investment for treasury groups in various places right now,” Fine said.
“But on the other hand people are anxious for alternative sources of funding always, and even the largest originators are eventually going to run out of balance sheet.”
Fine added that, “Obviously a function of running out of balance sheet is the place of the GSEs.
“That is very much a political issue. No one really knows how that is going to work,” he said.
“We do know conforming loan balances are coming down come the fall,” Fine added, noting that he believes this will open up opportunities that haven't been present recently.
