STEPHEN JOHNSON, SALES AND MARKETING DIRECTOR, COMMERCIAL FIRST MORTGAGES

Nurturing signs of life in securitisation

18 January 2010

Securitisation first appeared in the late 1970s and became a catalyst for explosive growth in the supply of funding to the mortgage and other finance markets globally.

This had a positive impact but also became the biggest contributor to the near-collapse of the financial system.

The principles of securitisation are robust and viable, and global finance needs require a functioning and healthy market.

For two years many have questioned whether this market will return but recently there have been encouraging signs that the renaissance may
be underway.

Commercial First’s securitisations stopped in autumn 2007, along with the mortgage securitisation market in general. It took until autumn 2009 to see deals come to market. These are strong quality transactions, typically prime residential mortgage assets issued by leading institutions.

But they are priced 1.5% to 1.7% above LIBOR for AAA-rated bonds. The pendulum has swung from issuers of securities maximising the deal structure in their favour to investors dictating terms.

In his Pre-Budget Report chancellor Alistair Darling said the government was exploring ways to encourage sustainable, transparent and standardised mortgage-backed securities markets. This acknowledges how important securitisation is to a properly functioning financial
system.

The UK government lags other countries in acting to restart this market. While there are signs of life the economy needs these to be nurtured.