For the next two days, I'll be blogging from the American Securitization Forum (ASF). It's the largest gathering of securitization market professionals in the U.S. each year. Though previously held in Las Vegas, this year the convention has chosen a more relevant locale: the Washington, DC area. As I write this, I'm listening to the first substantial talk of the day: the 2010 Securitization Market Outlook. Its message: things are improving; the market has a ways to go; nobody is sure what the future holds.
While broader banking has recovered, the securitization market is one that remains mostly asleep. As a result, the atmosphere at the conference is what you might expect: rather somber. It certainly isn't as lively as what I witnessed when attending the event back in early 2008, prior to the financial crisis and the failure of Bear.
The main convention room appears smaller than it did back then, but it's surprisingly packed -- standing room only. Everyone was listening intently to the securitization market outlook. The panel consisted of representatives from a variety of different aspects of the industry. Their message was mostly the same: the market will come back, we just don't know when.
Panelist Valerie Kay of Morgan Stanley predicted $20 billion of new issue commercial mortgage-backed securities in 2010. That would be quite a feat, because as panelist Jordan Schwartz of Cadwalader, Wickersham & Taft LLP reminded the audience: today marks the two year anniversary of the last successful new issue private label CMBS deal without Federal Reserve assistance.
Residential mortgage securitization is much worse off. In a poll of conference participants, only 35% thought that the RMBS market would come back to life this year. That could make for a difficult year for consumers to get mortgages, since the Federal Reserve is ending its program to purchase mortgage securities in March. 81% said they feared that day more than when the Fed removes its support of the other securitization markets through its Term Asset-Backed Securities Loan Facility.
The panelists were also asked about whether private investors will come back once the Fed removes its support. They thought so, but were less optimistic for residential mortgages. They worried that Fannie and Freddie would still crowd-out any private-label RMBS, since the government's decision to provide seemingly unlimited insurance is sure to please investors more than MBS without a guarantee. They believe once the government mortgage agencies begin to curb their guarantee volume, the private label market would pick back up.
(Written around 9:45am, posted later due to technical difficulties!)