Moody's says housing reform positive for private label RMBS

Tue Apr 15, 2014 4:54pm EDT

NEW YORK, April 15 (IFR) - A new report from Moody's says several provisions in the comprehensive housing finance reform bill proposed by US Senators Tim Johnson and Mike Crapo would help spur issuance in private-label RMBS.

Under the framework, fewer residential mortgage loans would be eligible for inclusion in government-guaranteed securities because of changes in criteria establishing which securitizations can receive government guarantees.

That has spurred hope in some circles that private label RMBS might eventually reach US$100bn-US$200bn a year, a mortgage analyst said. "It's the right step needed."

Non-agency RMBS was just under USD20bn last year - a far cry from the USD1tn at the market's 2006 peak. Year-to-date, volumes are just USD3.7bn, according to Thomson Reuters data.

But the Johnson-Crapo bill is unlikely to pass this year, owing to a divided Congress and the mid-term elections, according to the analyst, an investor and the Moody's report.

"Under the bill, a new agency, the Federal Mortgage Insurance Corporation (FMIC) would provide a government backstop for eligible mortgage pools that have secured a private first loss piece of 10% through FMIC-approved risk-sharing mechanisms," says Moody's analyst Sang Shin. "Loans would only be eligible for the FMIC backstop if they meet the CFPB's Qualified Mortgage (QM) standards, among other requirements."

The new requirements would be more stringent than the GSEs' current eligibility criteria, which do not mandate that loans meet all QM standards to be eligible for securitization.

Sang also said greater transparency and standardization, as well as the emergence of new issuers or aggregators to the market, was also needed to buoy confidence among investors.

Although issuers would use the platform to bring FMIC-guaranteed deals to market, Moody's says the platform would also be available for private label RMBS.

NEXT STEP: HIGH-LEVERAGE LTV LOANS?

Still, hurdles remain, including political infighting over the US real estate finance market and the not-quite-ripe economics of private RMBS issuance, the investor said.

The potential for disruption in secondary market liquidity could also hold down new origination activity, according to Moody's.

"The conforming loan provision is a shift from the Obama administration's stance and previous housing reform proposals such as the bill introduced last year by Senators Corker and Warner," said Sang of Moody's.

"Maintaining the existing maximum conforming loan balance would limit the potential increase in private-label RMBS issuance."

Meanwhile, Freddie Mac's STACR and Fannie Mae's CAS risk sharing programs have already gained a foothold among private RMBS buyers, the analyst said. Some investors in the maiden risk-sharing deals have enjoyed a largely stable 100bps lift from initial pricing levels, he said.

To that end, the GSEs are looking to expand their risk-sharing platforms to include bundles of high-leverage LTV loans, both the investor and analyst said.

If successful, that could mark a new post-crash milestone for the RMBS market, namely the pricing of highly leveraged residential loans in the credit markets, he said. The first credit-sharing deal to include this type of collateral could emerge as soon as the third-quarter, he said.

Calls to Freddie and Fannie were not immediately returned.

STRUCTURED FINANCE PRIMARY ISSUANCE: 4-15-14

ABS PRICED:

WOART 2014-A: World Omni priced its first prime auto deal since last October; the US$849.15m World Omni Auto Receivables Trust 2014-A. Barclays (structuring), JPMorgan and Wells Fargo were the joint leads. The 1.14/2.55/3.81-year Triple As printed at EDSF plus 16bp, interpolated swaps plus 20bp and interpolated swaps plus 26bp. Guidance was shown at 18bp-20bp, 22bp-24bp and 26bp-28bp.

ACAR 2014-2: American Credit Acceptance priced its second subprime auto offering of the year; the US$259.17m 144A/REG S American Credit Acceptance Auto(ACAR) 2014-2. S&P was the sole ratings agency on the trade. The top tranche was rated Double A and had a tenor of 0.84-years. Pricing was in line with talk at EDSF plus 75bp. Deutsche Bank (structuring) and Wells Fargo were joint leads.

KCOT 2014-1: JPMorgan was sole lead on the inaugural US$300m 144A/REG S Kubota Credit Owner Trust 2014-1. The structure consisted of Triple A rated notes (MDY/FIT) with average lives of 1.44, 2.76, and 3.81-years, respectively. Price guidance was seen at EDSF plus 28bp-30bp, interpolated swaps plus 35bp-37bp and interpolated swaps plus 43bp-45bp. Pricing levels tightened to 25bp, 33bp and 40bp.

ABS PENDING:

MMCA 2014-A: Barclays is sole lead on the US$215.1m Mitsubishi prime auto loan, MMCA Auto Owner Trust (MMCA) 2014-A. The capital structure includes 1.08- and 2.55-year Triple A notes that are being talked at EDSF plus 35 area and interpolated swaps plus 45bp-50bp. 3.48-year Double A and Single A slices are also being offered and are currently being shown at interpolated swaps plus 75 area and 110 area.

AFIN 2014-2: Ally Financial is in the market with its second non-prime auto loan transaction of 2014; the US$750m Ally Financial 2014-2. The Triple A slices offer weighted average lives of 1.29-, 1.86-, 2.58- and 3.23-years, respectively. Price guidance has been released at one-month Libor plus 30 area, EDSF plus 45 area, interpolated swaps plus 50bp-52bp and interpolated swaps plus 58bp-60bp. Deutsche Bank (structuring), Bank of America and JPMorgan are the joint leads.

SDART 2014-2: Santander released price guidance on its second subprime deal of the year; the US$1bn Santander Drive Auto (SDART) 2014-2.The 0.95-year Triple A classes will be offered as both fixed- and floating-rate, with guidance being shown at EDSF plus 32bp-34bp and one-month Libor plus 33bp-35bp. All tranches are public except for the 144A class E note, which is being retained by the issuer. The most subordinated offered slice is the 3.95-year Triple B, which is being talked at interpolated swaps plus 140bp-145bp. Deutsche Bank (structuring) and Citigroup are the joint leads.

(Reporting by Charles Williams and Joy Wiltermuth; Editing by Natalie Harrison)

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