Master Trusts for Residential Securities Urged

Article excerpt

LAS VEGAS -- Mortgage securitizers should set up a system of master trusts, in which the securitizers would be required to hold substantial ownership, a major investor in asset-backed securities said.

Such a structure would give sellers an incentive to originate higher-quality loans, since they would be among the largest holders in each trust, Kishore Yalamanchili, a managing director at the New York investment management firm BlackRock Inc., said Monday at the American Securitization Forum conference.

"We need substantial reform where we either have a different structure or we ask the seller to keep the subordinate classes," Mr. Yalamanchili said.

(Master trusts are commonly used by credit card issuers.)

He and other conference speakers offered a variety of fixes for a market that almost everyone seemed to agree is broken.

Allan Berliant, a portfolio manager at the Boston investment firm Grantham, Mayo, Van Otterloo & Co. LLC, described a problem that has confounded many investors: the inability to get accurate daily pricing information for asset-backed securities.

Four different Wall Street broker-dealers committed to provide daily pricing but were unable to do so, he said.

Broker-dealers "don't have the urgency or the market knowledge to understand whether the prices are good or not," Mr. Berliant said. "There needs to be a way to work with regulators, the Securities and Exchange Commission, and dealers so there is a better sense of commitment to pricing for mutual funds on a daily basis."

Many market participants directed their ire at the ratings agencies, advocating tougher regulation by the SEC and a compensation structure in which raters' fees would be collected not just from issuers but also from investors and would be linked to deal performance.

"The ratings agencies got it wrong on the way up and the way down," Mr. Yalamanchili said. "If we can regulate pharmaceuticals and aircrafts, why are we hesitating to regulate the ratings agencies? It's essentially a triopoly" - of Moody's Investors Service Inc., Standard & Poor's Corp., and Fitch Inc. - "and the compensation structure is basically flawed, and they should be paid out of a pool" of funds collected from both sellers and buyers of bonds. …