Standard & Poor’s Ratings Services believes that securitization—the packaging of assets into securities—will re-emerge in the U.S. as only a far smaller contributor to the credit markets, as it ultimately overcomes the significant regulatory and legislative hurdles that stand in the way.
That shouldn’t come as a surprise seeing that, at the securitization market’s peak in 2006, the market absorbed more than $2 trillion of new issuance, with U.S. private label residential mortgage-backed securities (RMBS) alone accounting for half of that.
By 2007, securitization provided some 40% of the total private credit in the U.S. While consumer ABS issuance led by auto-related securitization has remained active since then, we are not likely to come close to those high issuance levels again without the revival of private label RMBS issuance.
Four years on, issuance is still a fraction of its peak. Standard & Poor’s estimates that 2011 finished with roughly $200 billion in total issuance, and we expect a modest uptick this year, to $220 billion.
Auto-related ABS is responsible for the bulk of this, with issuance climbing steadily to $68 billion in 2011 from $58 billion for the full year 2010, and potentially reaching $80 billion this year, according to the Securities Industry and Financial Markets Association.
A strong rebound in the U.S. economy, however, could lift several sectors. For instance, economic expansion would likely translate into demand for commercial real estate loans and, by extension, CMBS. It would also spur corporate lending, boosting collateralized loan obligations; and when the unemployment rate finally falls and consumers regain confidence, the ABS sector—auto loans and credit card receivables—would benefit. The fact remains, however, that the economy is still fragile, the European sovereign debt crisis remains a concern, and we believe a strong rebound isn’t likely in 2012—or even 2013.
For more see Will U.S. Securitization Regain Its Relevance?
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