mark ferraris

Straight Talk from Geithner on Securitization

Two comments:

- I don't know what statistics the Secretary was looking at but the combined activity of the securitiazation markets (which includes the activity of the mortgage agencies) has for more than 15 years outstripped the balance sheets of the banks. It is not less than half.

- Every single fix that was introduced prior to the recent "toxic asset plan" was window dressing. The new plan is the main course and probably should have been introduced first. Many folks just get it wrong in terms of how the securitization markets work. The first phase of the process is the underwriting of the underlying assets. That's what the banks do best (although not so well recently). What securitization does is allow these banks to clear their balance sheets of yesterday's loans or originations by selling them off to what some call the "second market" through securitzations. The investors in this second market are nearly exclusively sophisticated institutions. Nevertheless, these investors need to be able to rely on the underwriting acumen of the banks that created the underlying assets. Over the past two plus years the complete erosion in the "confidence" that these investors have in the underwriting and structuring acumen of the banks is what has brought the securtization market to its knees and clogged up the balance sheets of even the most healthy banks. Programs like TALF will help to prime the pump but the toxic asset plan will have a far greater impact (by multiples of ten or more) on freeing up room on the balance sheets of the banks to create more assets (loans).

Mark Ferraris
Principal
Orchard Street Partners LLC

How the U.S. Banking System Was Madoffed by the FASB

Well said. I hope the board members at FASB read it. A little Econimics 101 refresher course for them.

In Support of Transparency: Reveal Securitization Certificateholders

Dave,

Interesting idea but perhaps a little clarification would help.

When a mortage-backed security (MBS) or other securitized debt intrument is issued, it is typically done under a public filing and the names of all the parties to the transaction (issuer, servicer, investment bank, bond trustee, etc.) are disclosed in the offering circular or prospectus, which is public information.

The names of the investors in the MBS securities are maintained by the bond trustee, not the servicer. The trustee represents the interests of the investors, not the servicer. The hitch here is that in today's markets, nearly all the securities are issued in book entry form and the trustee lists only one holder (assuming a US placement), The Depository Trust Company (DTCC), as the beneficial holder. DTCC in turn maintains records of all institutional holders (usually banks, brokers and other intermediaries) in the "nominee" name of those institutions. These intermediaries, in turn maintain the records of their investor clients (e.g. individuals or institutional clients). So, you see, it can be near impossible to ascertain who the holders of the securties are. Add in any ongoing trading activity and you add more complexity to the equation.

On the other hand, if you meant it would help to disclose the names of the mortgage borrowers that a servicer administers, I think you can clearly see that this would create issues of privacy (as would the disclosure of the securtity holders referenced above).

At the end of the day.... an interesting idea but probably way to complex to be implemented.

Mark F. Ferraris
Principal
Orchard Street Partners LLC