Quality of securitizations questioned

The quality of commercial mortgages being packaged into bonds is declining as sales in that market soar, according to a Standard & Poor’s analyst quoted in a Bloomberg News report Monday.

“There’s some crap getting done,” David Jacob, an executive managing director at credit-rating company S&P, said Monday during a panel discussion at the American Securitization Forum trade group’s annual meeting in Orlando, Florida, according to Bloomberg. “It’s surprising to me this early in the cycle that some of that could be happening.”

A decline in quality could have implications for the repurchase market, which finances much of the securitization and relies on the quality of the securities that collateralize the repo loans. Repo lenders’ concern over the quality of mortgage securities triggered the financial panic of 2007 and 2008.

Bloomberg said one possible reason for the decline in quality is demand for new securitizations of various assets from banks and other investors that are seeking higher returns as the Federal Reserve restrains bond yields. The Bloomberg story does not mention the repurchase market.

 Issuance of both commercial real estate and auto securities are rising, according to people interviewed by Bloomberg.

However, that total mortgage and non-mortgage asset-backed securities issued in 2010 was only $1.8 trillion, down from $2.1 trillion in 2009 and $3.6 trillion at the peak in 2003, according to statistics maintained by the Securities Industry and Financial Markets Association, a trade organization.


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