What is stopping the marginal non-agency residential mortgage-backed securitization deal today, and if volume increases, what are the inhibitors to gaining scale in the market?

Those were just a few of the questions before a panel Tuesday at 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.

The panelists also discussed the competitive threat of cheaper funding through the GSEs, and how RMBS 3.0 help resolve the inhibitors.

Moderator Eric Kaplan, managing director at Shellpoint Partners, led the panel consisting of Larry Rubenstein, managing counsel at Wells Fargo; Patrick Tadie, group vice president of Global Capital Markets at Wilmington Trust; Stephen Kudenholdt, co-chair of the U.S. capital markets practice at Dentons; Cheryl Glory, managing director at Bank of America/Merrill Lynch, and Vincent Fiorillo, global sales manager at Doubleline Group.

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.

“Volume in 2015 is likely to remain flat in prime jumbo originations,” Glory said. “The market is extremely fragile. The economics are negative to the way we view execution on a whole loan sale.”

She also said that another arena worth watching is money center banks.

“Money center banks are inelastic in their view of interest rate movements and (looking) to bring on their balance sheet jumbo loans,” Glory said. “Aggregates competing with money center banks to buy loans.”

On moving into non-QM focus, Glory had this to say:

“The performance on new issue jumbo has been stellar. Tremendous performance. I think we are trying to frame this market as we move onto a non-QM space and (it bears watching as a growth area),” she said

Kudenholdt said that a lot of the work on reps and warrants is wrapping up and “now what we’re focusing on a lot are the roles of transaction parties – we’re looking at 125 roles in transaction parties and assigning responsibility for those roles” such as trustee, owner trustee, document custodian role, and so on.

Specifics he emphasized included that the role of a trustee can’t be that of an originator, and that it’s unclear whether the fiduciary role would have prevented problems of the past or will prevent “some of the stuff people are fearful of going forward.”

Fiorillo said he wasn’t clear that the issue of reps and warrants is done.

“When did we find the agreement on reps and warrants? I’m wondering why I spend three hours a week talking with Treasury about what reps and warrants mean,” he said.

He said deals also need an ombudsman role with authority to execute problems in investments and servicing deals, as well as the adoption of simpler documents to make it easier for investors to look at a deal and move on.

Rubenstein, following Fiorillo, said that to the extent that there are future settlements and how they affect future PLS RMBS deals, those issues Fiorillo raised need to be resolved. But the two disagreed on where the responsibility lies on policing, on determining issues of misrepresentation, and what should protect servicers and investors.  

“What Vince is saying is I need someone in the deal who is minding the shop,” Kaplan said.

Kudenholdt said that the industry is moving from an area of vast regulatory uncertainty to where most of the issues have been sorted out.

“That’s good for the market to have that uncertainty behind us,” he said. “The most important highlight for RMBS is that the RMBS industry is just not engaged in Reg AB 2. I haven’t found anyone in the pilot program for RMBS.”

Fiorillo said that he thinks the markets will get there, and the simplification is helping.

“I think we can get there. Simplification of the regs – what is fraud…” Fiorillo said.

“The only benefit today in the PLS market is we don’t have no-doc loans,” Glory said, interrupting.

“If I want to write 100% LTV loans – I should have the right to,” Fiorillo countered. “As long as we’re not putting the taxpayer on the hook.”