Treasury plans standard PLS model
The US Treasury is partnering with ratings agencies to design the parameters of a benchmark private label RMBS issuance in the hope of resurrecting the moribund PLS market.
All five RMBS raters — Moody’s Investors Service, Standard & Poor’s Ratings Services, Kroll Bond Rating Agency, Fitch Ratings and Morningstar — have agreed to take part in the exercise, Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy, said during a panel discussion at the ABS East conference in Miami.
The partnership would bring transparency and information to the market on how large PLS deals would be rated, added Stegman.
The exercise calls on the agencies to assign theoretical ratings to a Freddie Mac risk-sharing issue off its STACR shelf, but the agencies are to consider the STACR issuance as if it is a pure non-agency securitization.
Standard term sheet
Also in the works at the Treasury is a plan to coordinate meetings with groups of investors and issuers to design the terms of PLS deals, in order to support the development of a standard term sheet modeled after one or more benchmark issues, Stegman said.
Market participants agreed with Stegman that a benchmark deal would help jump start the PLS market, but they noted some concerns, namely that the exercise would be necessary for varying types of issuance.
“I think it’s a good partnership,” Structured Finance Industry Group Executive Director Richard Johns said. “[But] it’s very hard to get a one-size fits all solution.”
Redwood Trust Managing Director Fred Matera said the Treasury’s plan was a “great idea,” so long as it was “something big enough to get everyone’s attention”.
New rules and regulatory uncertainty continue to hamper PLS issuance. Panellists took shots at a couple of the usual targets: Reg AB II and risk retention.
“It’s unfeasible for an issuer to launch a funding strategy right now,” Johns said, referring to the yet-to-be-finalised risk retention rule.
Regarding the liquidity coverage ratio’s treatment of ABS and RAMPS as an illiquid product, Johns said “you don’t have to be Einstein to work out that the market is going to be illiquid as a function”.