Fitch predicts a plain vanilla structured finance future
Simpler structures with increased credit and loan quality will be the norm for structured finance transaction next year, according to Fitch Ratings. Analysts provided a stable outlook for the space and market participants to begin employing a "lessons learned" approach, as the economy "turns the corner towards stability" in 2011. "From a new issuance perspective, 2011 will bring an increased amount of transactions that continue to employ a 'back-to-basics' approach," according to Kevin Duignan, Fitch managing director and head of U.S. structured finance. "New structured finance deals will see continued improvement in loan quality and will be issued by higher credit quality sponsors employing less complex structures." Fitch said asset-backed securities are well positioned for growth next year because delinquency and loss metrics are better than they've been in years across several asset classes, according to analysts. Meanwhile, the high and increasing number of loans specially serviced and the issues tied to the robo-signing fiasco are expected to continue to weigh down the mortgage-backed securities industry. Duignan expects liquidity returning to the commercial MBS market "should help improve rating stability" for the space in 2011. But the already elevated shadow inventory of distressed properties will outweigh increasing property price in residential MBS. "The foreclosure issues will cast further a pall on a housing recovery that was slow out of the gate to begin with," he said. Fitch said collateralized debt obligations with exposure to CMBS may see more marginal downgrades next year because of the pressures in the underlying CMBS sector. Still, analysts said "the worst appears to be finally over" for structured credit, "given the declining default rates observed in the high-yield sector." Write to Jason Philyaw.