The Securitization Market Post-2007
In Chapter 1 we described the impact of the 2007–2008 financial crash on the securitization market. A straight comparison will suffice to illustrate this impact; for example, in 2007 U.S. market public and Rule 144A ABS issuance amounted to $863 billion. In 2008 and 2009 the same asset issuance was $230 billion.1 This is a tremendous decline; indeed, the majority of the issuance was under the Term Asset-Backed Loan Facility (TALF), a support program introduced by the U.S. government during the financial crisis of 2007–2008. What this statistic also tells us is that securitization remains a viable and valuable asset class for both originators and investors, given that issuance did not disappear completely. Therefore, in this section we look briefly at the market in the immediate postcrash era and also discuss salient features of interest to investors.
A standard feature during the recovery in an economic cycle is that risk aversion decreases once the worst of the recession is over. For example, during 2009, UK AAA-rated residential MBS spreads tightened over 300 bps and were trading at 180 bps over LIBOR. This is considerably below the yields seen only six months previously. Exhibit 2.1 shows UK residential mortgage-backed securitization (RMBS) spreads over alternative bank funding sources (straight bank debt rated AA and bank-covered bonds) for the period 2005–2009.