In this analysis, we take an in-depth look at the array of forces affecting asset securitization in the “new normal,” focusing in particular on mortgage securitization. The report takes into account the deliberations over the weekend at the American Securitization Forum, as well as the array of policy developments in recent weeks. We conclude with a look at the prospect for a gradual shut-down in all securitizations but those with a government guarantee, an idea with growing backing despite the obvious adverse impact it would have on retail credit availability.
Mortgages are of course the only asset sector with an existing, meaningful U.S. Government role – one obviously expanded now that the GSEs are effectively USG-owned entities. This has to date ensured ongoing mortgage securitization albeit in forms uncertain through institutions in flux. The report assesses the legislative landscape and other critical pending initiatives. We evaluate the prospects for GSE reform and changes to the FHA, as well as the risk-retention and other vital measures moving through Congress that could affect asset securitization in a big, big way. We then turn to the complex regulatory landscape, looking at both global rules – regulatory capital and liquidity standards in particular – and immediate U.S. initiatives like the recent consolidation rule and the FDIC’s proposal on its claims on the assets underlying ABS.
We also assess the impact of each of these initiatives and discuss how they might or might not combine to rewrite the landscape for U.S. mortgage securitization. We do not, however, provide a definite strategic forecast because we believe any would be misleading until the shape of critical policy – not to mention political – initiatives takes better shape. The sum total of all of these proposals – and many of them even on their own – is so punitive to securitization that most, if not all, of the incentives to sell assets into the secondary market would be diminished or dashed. This will make the U.S. Government’s role in mortgage securitization – and, of course, the GSEs and FHA – a vital consideration going forward.
The full text of this report is available to subscription clients.