Group Looks to Rebuild Investor Confidence in Private-Party RMBS

Holding out for a rebound in the mortgage securitization market hasn’t worked out so well for many of Wall Street’s finest; a year ago, many were suggesting publicly that the lock-up in the non-agency securitization market was a temporary affair, and that the markets would soon rebound.

Some former subprime lending giants even went so far as to pay to take out private conference rooms at an industry conference in February to tout a planned re-entrance into subprime securitization — onetime subprime mortgage presence Accredited Home Lenders, Inc. among them, for those curious to know.

At the time, the mood among many industry participants was a somber-yet-optimistic mix, based on the belief that such a huge market would never merely lay down and die.

Those beliefs appear to have since faded somewhat, with months passing and virtually nothing re-emerging at all in the non-agency RMBS space. On Wednesday, the American Securitization Forum said it had officially launched an initiative called Project RESTART — that’s Project on Residential Securitization Transparency and Reporting — aimed at restoring investor confidence in the ABS/MBS markets and bringing capital bank into the space.

Central to the new initiative is the development of a set of industry-standard transparency, data and diligence standards for residential mortgage backed securities offerings; while RMBS is the initial focus of the collaborative effort, ASF official said they expect the initiative to extend into other major asset classes over time.

“ASF Project RESTART has been undertaken to help restore confidence in the securitization process, with the fundamental goal of ensuring that securitization will continue to serve as a widely used and beneficial means of providing low cost credit to borrowers,” said Tom Deutsch, deputy executive director of the American Securitization Forum.

“[The initiative] is an important, collaborative effort by the securitization industry to identify and pursue specific and necessary steps towards actionable solutions that are designed to revive investment now, in response to the current crisis, and promote well-functioning markets over the long term as the securitization process evolves.”

Starting with disclosure standards
To kick off its public formation, the group simultaneously released a proposed set of RMBS disclosure guidelines, which it said “standardizes and expands existing issuer disclosure to investors and credit rating agencies, particularly on mortgage loan-level information.” The proposed standards are now available for member comment, according to a press statement.

ASF investors committee chair Ralph Daloisio, also managing director at Natixis, said that establishing a common set of standards around investor disclosures was a “critically important initial phase” for rebuilding confidence in the battered non-agency RMBS market.

While the project is industry-led, Bush administration officials and federal and state regulators have been involved as well, the trade group said; the ASF has already been working with the administration on its HOPE NOW foreclosure prevention efforts.

“Events over the last year have created unprecedented dislocations in the credit markets, which has caused a shift from an overabundance of liquidity to an environment where many borrowers are unable to find affordable mortgage credit because originators cannot finance loans in the debt capital markets,” said George Miller, executive director at the ASF.

“Given extreme pressures on lenders’ balance sheets and the capital constraints they face, as well as macro factors such as broad-based housing price declines and overall economic weakness, the need to restore the benefits of securitization to borrowers, lenders and the economy at large has never been greater.”

Fore more information, visit http://www.americansecuritization.org

Related links: RESTART disclosure standards request for comment

Sidenotes: RESTART participants identified over 130 specialized sets of core pool and loan level data fields useful in rating and evaluating a pool of mortgage loans in an RMBS transaction in developing the proposed guidelines, according to the ASF … Under the proposed package, issuers will collect and provide additional data for specialized types of loans … the comment period is open until August 22.