New regulations from the Treasury Department and IRS regarding “earnings stripping” tax-avoidance schemes by multi-national companies will apply to ABS in certain circumstances, causing problems for issuers and investors, according to industry analysts. The regulations aim to reduce the benefits of corporate tax inversions and earnings stripping by distinguishing debt from equity. “Earnings stripping can reduce a company’s tax bill by generating large interest deductions when that company simply increases its debt to an affiliated foreign firm, without financing new investment in the U.S.,” Treasury Secretary Jacob Lew said when announcing the new regulations in October. The regulations generally apply...

Issuance of non-mortgage ABS increased by 25.5 percent from the second quarter of 2016 to the third, thanks to significant increases in several asset categories, according to a new Inside MBS & ABS analysis and ranking. The market produced $54.05 billion of non-mortgage ABS during the third quarter, the highest output since the second quarter of last year. Despite the gain, year-to-date issuance remained 1.9 percent below the level notched in the first nine months of 2015. A lot of the increase came...[Includes two data tables]

The Structured Finance Industry Group is preparing to publish standards that aim to increase transparency for representations and warranties on new non-agency MBS, according to officials at the trade group. Eric Kaplan, a managing partner at Ranieri Strategies, said SFIG will release one or two “green papers” this year as part of the group’s RMBS 3.0 effort to revive issuance of non-agency MBS. Kaplan detailed the plans along with Daniel Goodwin, director of mortgage policy at SFIG, at the recent ABS East conference produced by Information Management Network. SFIG has released...

Affiliates of New Residential Investment this week issued a $345.0 million ABS backed by excess spread from mortgage servicing rights on non-agency mortgages. The deal appears to be the first of its kind to receive a credit rating. Morningstar Credit Ratings assigned a BBB rating to NRZ Excess Spread-Collateralized Notes 2016-PLS2. With MSRs, excess spread consists...

Issuance of new residential MBS and non-mortgage ABS rose sharply in the third quarter of 2016, according to a new Inside MBS & ABS analysis. The market produced a total of $494.11 billion in new MBS and ABS during the third quarter, a 25.0 percent increase from the second quarter. That brought year-to-date production to $1.208 trillion, slightly ahead of the pace set during the same period in 2015. It was...[Includes one data table]

A boom in ABS backed by unsecured consumer loans requires closer scrutiny, according to analysts at Fitch Ratings. Marketplace lenders have boosted the issuance of such ABS in recent years, though the rating service warned that deal performance is difficult to predict. “Many firms in this space have legitimate value propositions and apparent technological advantages,” Fitch said. “However, they have yet to prove their underwriting merit.” Since September 2013, at least 31 ABS totaling $4.60 billion backed by consumer loans from marketplace lenders have been issued...

Fitch Ratings was the most active rating service in the sluggish non-agency MBS market through the first half of 2016, according to a new Inside MBS & ABS ranking. Standard & Poor’s was the top rating agency in the more active non-mortgage ABS market. Fitch rated just seven non-agency MBS issued during the first six months of the year, which totaled $4.74 billion in volume. While that equaled 30.9 percent of total non-agency MBS issuance for the period, many deals were private placements without ratings. Fitch’s share of rated issuance was 55.4 percent. DBRS ranked...[Includes two data tables]

The complex financing arrangements used by certain investors and a lack of clarity from federal regulators can make it difficult to determine the entity responsible for meeting risk-retention requirements in some MBS and ABS, according to Charles Sweet, senior counsel at the law firm of Morgan Lewis. The Dodd-Frank Act generally required the sponsor of a security to retain at least 5.0 percent of the risk from the security. Sweet said determining the sponsor of an MBS or ABS can be fairly straightforward when one company originates the assets, services the receivables and initiates securitization, as in the case of an ABS backed by automobile retail contracts from a captive finance company of a car manufacturer. However, where securitization roles are more dispersed, Sweet said...

Bank and thrift holdings of non-agency ABS fell slightly during the second quarter, but the industry is not backing away from the consumer credit space. Depositories prefer to hold these assets in unsecuritized form on their balance sheets. A new Inside MBS & ABS analysis of call-report data shows that banks and thrifts held $130.98 billion of non-mortgage ABS at the end of June. That was down 0.7 percent from March and represented the 10th consecutive quarterly decline since the end of 2013, when the industry’s ABS holdings hit their all-time peak. According to the Securities Industry and Financial Markets Association, the supply of non-mortgage ABS debt outstanding actually rose...[Includes two data tables]

Republicans running the House Financial Services Committee had enough votes, in spite of one defection, to push through a legislative markup this week a comprehensive overhaul of the Dodd-Frank Act that would eliminate the pending risk-retention requirements for ABS other than residential mortgages, among other provisions. The GOP’s preferred legislative vehicle is H.R. 5983, the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, dropped in the legislative hopper a week ago by Rep. Jeb Hensarling, R-TX, committee chairman. “Many post mortems of the financial crisis posit...