We remarked last week that the FDIC had put forward a proposal for fixing the securitization market. To be a bit more precise, it was the FDIC’s plan, put forward for public comment, of the rules it wanted to have in place for banks to get “safe harbor”, meaning off balance sheet treatment, for their securitizations.
As anyone who had even slight contact with the business press no doubt knows, a whole raft of credit bubble era securitizations, particularly real estate and credit cards, have suffered losses far in excess of what banks and investors anticipated. The result, with real estate securitizations, is that almost all of the market ex government guaranteed paper is in a deep freeze. Worse, servicers, who were never set up to do loan mods (and by happenstance also make more by not doing mods) are operating to the disadvantage of investors and communities (as we have mentioned on previous posts, vulture investor Wilbur Ross, the antithesis of a bleeding heart, has demonstrated that deep principal reductions work and for viable borrowers produce better results for the investors than foreclosures). For credit card conduits, rather than let them flounder (banks desperately need to keep that pipeline open) banks have intervened to shore them up, raising serious questions about their off balance sheet treatment.
So right now, we have a securitization markets, ex the parts on government drip feed, or actively supported by the banks, that are in a wee bit of disarray. And the FDIC plan reveals an ugly little conundrum: what it takes to private real estate securitization safe for investors (in particular, twelve month seasoning of deals and a 5% retention, but there were other well though-out provisions as well) make it much less attractive to banks.
continued>>>
http://www.nakedcapitalism.com/2010/02/bank-securitization-woes-only-beginning.html
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