During the 2008 financial crisis, investors in non-agency MBS sought repurchases from issuers, citing faulty underwriting and disclosures. A similar surge in putbacks could be on the way for the auto ABS market.
The Fed is taking steps to boost the market for agency MBS and certain sectors of the ABS market, while non-agency MBS isn't receiving direct relief. The Structured Finance Association called for an expansion of the new TALF.
The SEC’s Office of Credit Ratings is exploring how it can address conflicts of interest in ratings of MBS and ABS. An increase in performance-related disclosures and boosting unsolicited ratings are being considered.
The biggest asset categories, consumer finance and credit cards, saw declines in bank investment during the fourth quarter, but the industry added ABS backed by auto loans, business finance notes and leases.
Alternative data, machine learning, blockchain and document digitalization in securitization deals have the potential to improve credit quality, but they are untested and come with risks, says Moody’s.