Life for ABS investors got a little easier this week as Morningstar Credit Ratings put out its methodology for U.S. ABS ratings, outlining the principles the firm uses when evaluating, rating and monitoring financial, operating and corporate asset transactions. Morningstar’s analytical framework utilizes seven areas of analysis common to ABS transactions: legal structure, asset quality, transaction structure, credit support, cash flow analysis, originator and servicer quality, and counterparty risk. The analysis begins...

Moody’s Investors Service – which has been on the sidelines in the sputtering jumbo MBS market this year – has edged up to become the most active rating service in the non-mortgage ABS market, according to a new Inside MBS & ABS analysis. Moody’s rated 71 ABS over the first half of the year, deals with a total issuance volume of $66.15 billion. That represented 64.5 percent of total non-mortgage ABS issued in the first six months of 2014. Moody’s had its biggest market shares in vehicle finance ABS and student loan deals. Standard & Poor’s ranked...[Includes two data charts]

The recent adoption by the Securities and Exchange Commission of its Regulation AB II disclosure rule is expected to be a “credit positive” for the auto loan and lease ABS sector, but it probably will also raise costs for market participants and, ultimately, consumers, according to an industry consensus of the new rule. The new regulatory regime mandates standardized loan-level disclosures for ABS backed by auto loans and leases, as well as other classes, as reported previously. The loan-level data have to be provided on the SEC’s free online database known as the EDGAR system. Although specific data requirements vary by asset class, the new asset-level disclosures generally will include...

Commercial banks and thrifts reported a modest decline in their non-mortgage ABS investments during the second quarter of 2014, although several key sectors showed growth, according to a new analysis and ranking by Inside MBS & ABS. Bank call reports show that the industry held $171.2 billion of non-mortgage ABS in portfolio as of the end of June. That was down 0.8 percent from March, marking the second straight quarterly decline after bank ABS holdings hit a record $173.8 billion at the end of 2013. Bank holdings of auto loan ABS actually increased...[Includes one data chart]

Issuers of non-agency MBS and commercial MBS, among other structured finance asset classes, are set to face increased costs to comply with a rule from the Securities and Exchange Commission that increases disclosure requirements. But deals that are not issued publicly would avoid the increased costs. Last week, the SEC unanimously adopted a wide-ranging final rule known as Reg AB2, which was first proposed in 2010. By the beginning of 2017, newly issued, publicly registered non-agency MBS will have to include 270 loan-level data points disclosed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system, known as EDGAR. The required disclosures include...

A proposal from the National Credit Union Administration to permit covered credit unions to securitize loans they have originated – but not purchased – is widely seen as insufficient by the credit union industry because of that limitation. That’s likely to prompt the regulator to favorably revise the proposal in the coming months, industry analysts say. Back in June, the NCUA issued a proposal to authorize loan securitizations by credit unions, but only for loans originated, not purchased. It also proposed permitting the creation of special purpose vehicles (SPV) to hold the assets collateralizing the securities. Additionally, the proposal lists a number of minimum requirements and limitations on residuals and retained interests. The Credit Union National Association, in its comment letter to the agency, indicated...

Potential investors in non-agency MBS are calling for significant changes to the market before they’re willing to resume investing in new non-agency MBS. Non-agency MBS issuers indicate that they are willing to make some changes to attract investors, while other adjustments will require action by federal regulators or Congress. In June, the Treasury Department requested comments on how to increase non-agency activity and decrease the agency MBS share of mortgage financing. The comment period closed late last week, with about 25 industry participants submitting feedback. John Gidman, president of the Association of Institutional Investors, said...

The Department of Justice recently subpoenaed GM Financial and Santander Consumer USA, two of the largest subprime auto ABS issuers in the U.S., over concerns about their subprime auto lending and securitization operations, the two companies recently revealed. The developments suggest that such regulatory scrutiny of the sector in the wake of the financial crisis is intensifying, market participants and policy analysts say. Whether that will pose a substantial risk to other lenders remains to be seen. GM Financial announced...

New issuance of non-mortgage ABS dropped slightly during the second quarter of 2014 from the robust levels recorded in the first quarter of 2014, according to a new analysis and ranking by Inside MBS & ABS. A total of $49.14 billion of non-mortgage ABS were issued during the April-to-June cycle, an 8.0 percent decline from the first quarter of 2014. But new issuance remained...[Includes three data charts]

Subprime auto lending is just about back to the levels seen before the financial crisis, with increased ABS issuance volumes, somewhat higher credit losses and more credit enhancement to offset declining ABS credit quality, according to new research from Standard & Poor’s Rating Services. While newer subprime auto ABS have more credit risk, ratings are expected to remain stable. During an S&P webinar this week, Amy Martin, a senior director at the rating service, pointed out...