Four Wise Men of Securitization: Not many remember 2008

Bad underwriting more a concern than bad products

The first full day of ABS Vegas 2015 kicked off with a look at the securitization’s beginnings and its future from the “four wise men” of securitization – Jason Kravitt, partner with Mayer Brown; Vernon Wright, trustee with the Wright Family Foundation; Sanjeev Handa, managing member at Old Orchard Lane, and Auspex CEO George Miller.

The four kicked off the first day with a riff on the classic Monty Python skit “The Four Yorkshiremen” – with the four coming out in tuxedos, sipping Dom Perignon while faux complaining about securitizers today.

“This industry has gone the way of the New England Patriots – someone deflated its balls,” was one of the best lines of the skit.

The four played their skit to a packed main room at the ABS Vegas 2015, the Structured Finance Industry Group/IMN capital markets conference at the Aria Resort & Casino in Las Vegas. This is the second ABS Vegas conference since the split of SFIG from the American Securitization Forum.

More than 6,000 traders, investors and structured finance/securitization professionals turned out for the three-and-a-half day program, developed by leaders representing the full spectrum of industry participants including investors, issuers, financial intermediaries, regulators, law firms, accounting firms, technology firms, rating agencies, servicers and trustees.

The use of levity during the conference brought back memories of the European Securitization Forum's 2007 annual in Barcelona. During that conference, held right before subprime imploded, several securitization professionals played in a band, which performed at the conference, under the name "D'Leverage."

After the fun this morning, the four walked through their view of the beginnings of securitization, where things went wrong in the financial crisis, and what the focus will be in 2015 and beyond.

On the issue of recent moves by the Federal Housing Finance Agency and whether these changes brought by Director Mel Watt are being undertaken responsibly or repeating the same mistakes, Handa said it’s not repeating the same mistakes.

“You have to look at the entirety of what he’s is suggesting and see the nature of the borrower and what is being purchased," Handa said. "I don’t think there’s wholesale bad products – there is bad underwriting. It’s incumbent on people buying these to see if the risk is acceptable to them."

Wright said he worries about the short memory the industry has.

“The industry has a short memory. With turnover in the industry not as many people remember 2008,” Wright said. “My concern is that people focus on not the right key elements. You have to look at safety and look at the soundness of structure."

Miller said his final thought was that it comes down to diligence and discrimination. 

“Securitization is not a thing; it’s a process. It can be used for good purposes and it can be misused and abused for bad purposes,” Miller said. “Let’s identify the problems where they exist. Let’s avoid painting all securitization with a broad brush. There are segments that operated fine through the crisis.”

3d rendering of a row of luxury townhouses along a street

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