ASF: Function, confidence need restoring in asset-backed securitization

Restoring function and confidence to the securitization market is not only urgent but a necessary ingredient for economic growth, an official with a leading industry trade group told a Senate banking committee Wednesday. Tom Deutsch, executive director of the American Securitization Forum, said there’s more than $12 trillion of outstanding securitized assets such as residential mortgage-backed securities and asset-backed securities, which is double all Treasury securities combined. He pointed to an estimate by the International Monetary Fund that indicates a financing gap of $440 billion between U.S. credit capacity available for the nonfinancial sector and total credit demand from that space for 2009, as one reason for a strong and reliable securitization market. “With the process of bank de-leveraging and balance sheet reduction still underway, and with increased bank capital requirements on the horizon, such as those expected in Basel III, the funding capacity provided by securitization cannot be replaced with deposit-based financing alone in the current or foreseeable economic environment,” Deutsch said in testimony before the Senate Committee on Banking, Housing and Urban Affairs. The hearing is a second round of testimony from regulators and housing-finance leaders on the problems in mortgage servicing from foreclosure to modification. The recent turmoil within the mortgage finance space and the overall recession has led to a dearth in issuance of RMBS and ABS. “Simply put, the absence of a properly functioning securitization market, and the funding and liquidity this market has historically provided, adversely impacts consumers, businesses, financial markets and the broader economy,” according to Deutsch. Securitization funds between 30% and 75% of lending in various markets, he said, including an estimated 59% of outstanding home mortgages. Reiterating what the ASF said in a recent white paper, Deutsch said the group doesn’t believe the robo-signing debacle and questions regarding the validity of the foreclosure process that have plagued mortgage finance the past few months are as hurtful to the industry as some pundits and commentators claim. “The conventional process for loan transfers embodied in standard legal documentation for mortgage securitizations has been adequate and appropriate to transfer ownership of mortgage loans to the securitization trusts in accordance with applicable law,” he said. “This process is sufficient to establish ownership by the securitization trusts.” Write to Jason Philyaw.