Category / Securitisation and Tranching

Sausage makers like sausages January 31, 2014 at 9:53 am

An important catch from Tracy Alloway at FT alphaville, this: Ing-Haw Cheng and colleagues looked at how the personal portfolios of mid-level staff involved in the securitisation industry in 2006 did, and found that they were even worse than the ordinary’s Joes’. Why? A job environment that fosters “groupthink, cognitive dissonance, or other sources of over-optimism” perhaps?

From the abstract:

We find that the average person in our sample [of mid-level insiders] neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.

Derivative not toxic shock November 29, 2013 at 10:41 pm

They’rrrre baaack. It’s leveraged supersenior kids, but not as you know it. Specifically not as you know it because the new ones are not non-recourse on the leverage, so they have no gap risk for the seller. Now, there are some not-entirely-accurate statements going around about what is actually happening here, so let’s look.

How would you synthesize a leveraged supersenior position? Well, take the underlying CDO, and sell the junior for a fair price. Then take the senior, put it in an SPV, and fund that vehicle by (i) a lower tranche equal to the LSS investor’s initial investment and (ii) an upper tranche which is wrapped by the LSS investor. The fair LSS coupon is then determined by the total carry available on the senior minus what an investor in the upper tranche would need for bearing the joint default risk of the LSS investor and the upper tranche of the senior tranche of the underlying loans.

Conditional pass through covered bonds October 28, 2013 at 7:08 pm

NIBC has launched a variant on the covered bond which has an interesting structure. This conditional pass through changes what happens if the issuer defaults. Then, if liquidity in the asset pool is insufficient to redeem the bond, and the pools fails an am test (i.e. the pool would not be sufficient to redeem the bond if sold), and creditors agree, then cash flows from the pool pass straight to bond holders, with maturity extension if need be. This avoids forced sale risk on the collateral pool, and is rather neat.

Estimating the riskiness of OTC derivatives CCPs August 19, 2013 at 1:39 pm

There’s a post on the CDO pricing methodology for estimating OTC derivatives CCP riskiness over on the RegTech blog here. Regular DEM readers won’t find anything new – we just outline how to think of a CCP as a CDO, with collateral assets the derivatives receivables and tranches corresponding to the various amounts in the CCP’s default waterfall.

m-REIT questions and answers July 10, 2013 at 3:10 pm

Q. What’s does negative convexity mean for most US MBS?
A. As rates go up, the bond’s duration lengthens, so it gets less valuable faster than a standard fixed rate bond.

Q. What’s an m-REIT?
A. A leveraged vehicle that invests in US MBS

Q. So an m-REIT is a leveraged negative convexity play?
A. Yep.

Q. What could possibly go wrong?
A. Well, m-REITs are down 19% in a couple of months without really big moves for one thing.

Identifying a fraudulent conveyance June 11, 2013 at 7:43 am

Carolyn Sissoko left me a highly thought provoking comment recently. She referenced a paper by Kenneth Kettering, Securitization and Its Discontents, that is definitely worth reading. Both Carolyn and Ken’s arguments are multi-faceted, and today I want to concentrate on one of them – the problem of identifying a fraudulent conveyance.

First, why do we care? Roughly, because if a transaction is judged to be one, it can be invalidated in bankruptcy. The buyer can be deprived of something that they might have thought that they had title to.

The foundation of the law here is ancient: a statute from Elizabeth I’s reign (13 Elizabeth 1571) according to Kettering. The idea, though, is simple: a transaction will be judged fraudulent if it was made with actual intent to hinder, delay or defraud any creditor. Thus for instance if on my bankruptcy some of my assets are transferred to you with consideration less than their fair value, then the conveyance is fraudulent and unlikely to be upheld by the bankruptcy judge.

There are many other issues in this space, and the issue is complex, so I am going to simplify down to just this one aspect of fraudulent conveyance and its impact on securitisation, because that is more than enough for one post.

Note that in order for there to be a fraudulent conveyance, there needs to be a conveyance; so any structure where the asset is not sold is not at risk (although obviously any other form of risk transfer might be). Thus for instance covered bonds are not a problem as (typically) the assets stay on balance sheet, and explicit statutory protection gives the bond holder security*.

The problem in cash securitisation is that consideration is often in several parts: I sell assets but keep junior tranches of the deal. Therefore if the assets turn out well, I am paid via excess return on the collateral pool going to the equity tranches. This often means that I can be unconcerned about a little over-collateralisation as, economically, it will come right in the end. Getting to the end though involves not going bankrupt, and that o/c meanwhile sails close to that badge of the fraudulent conveyance, selling something for less than it is worth†.

Now, I don’t take the position that securitisation ‘doesn’t work’ for these reasons: clearly in some operational sense it does work. But these considerations show that the interaction of ancient law and modern finance can generate friction and – occasionally – unexpected case law. (LTV Steel, a case that shook the entire securitisation industry, is a good example.) The risks are often greatest when one is pushing the edge of established structures and, perhaps unwittingly, crossing a line drawn hundreds of years ago and never re-drawn.

*Although see here for the rather less satisfactory situation in the US.

†The rules of article 9 of the UFCA are some help here, as they remove some of the risk of o/c.

JP with madeira and a tea cake* March 17, 2013 at 11:52 am

It seems that JPMorgan’s travails have become a spectator sport, to be enjoyed with a snack of your choice. I am only half way through the senate report, let along the appendices, so I won’t add to the (already comprehensive) guides to the action‡.

Instead I want to focus on four key issues which emerge from this debacle.

  1. CIO wasn’t hedging. Like Matt Levine, I had bought the firm’s line that the original portfolio was a macro hedge against the loan book. It is now clear that while that might, in the mists of time, have been the original motivation, the CIO’s office had turned into a prop trading center by 2012. This happened without, as far as I can tell, any authorisation, any redesign of the risk framework, or any changes in oversight. Mind you, given that the risk framework was not based on how well they were hedging anyway, that is hardly a surprise.
    The Machiavellian analysis of this is that they were trying to prop trade while avoiding Volcker. My gut feeling is that it wasn’t that: they were simply out of control.
  2. As Lisa says, mis-marking is key here. The practice whereby, in complete violation of what the accounting standard actually says, US banks are permitted to mark derivatives anywhere between bid and offer must now receive attention. Supervisors must ensure that firms mark at where they can exit the position as it is absolutely clear that external auditors cannot be relied upon to police valuation practice.
  3. My earlier conjecture that capital management was central to the whale losses is born out. But it is worse than I thought: capital optimisation was mostly about changing the model so that it generated lower numbers. This was wholly cynical, and is bound to increase the pressure to reduce the capital benefit available from the use of internal models§.
  4. While JP undoubtedly kept things from the OCC, the OCC’s process allowed JP to make model changes without sufficient oversight, did not exercise control over valuation practices, and had little idea what was going on in the CIO. After all, the story was broken by journalists based on public information.
    While all the focus so far has been on JP’s mis-deeds, JP’s supervisors do not emerge from this covered in roses.

It will be interesting to see if the Senate can keep up the (encouragingly bipartisan) momentum here. One is uncomfortably aware that a confrontation may be brewing with politicians and public on one side, and the big banks, the OCC, and perhaps the FED on the other. If it really does pan out that way, the legitimacy of current regulatory arrangements may not survive the fall-out.

*The reference is to an extraordinary radio interview that Paul Roy, ex-head of equities at Merrill, gave about the old days on the London Stock Exchange, in which he claimed his equity traders used to enjoy a glass of madeira, or perhaps champagne, as a mid-afternoon pick-me-up. O Tempora, O Mores.

‡See also here and here. One delicate point, by the way, which I have not seen anyone really pick up on, is what ‘lag’ means in the transcripts. It seems to mean the time between general economic improvements affecting the HY vs. the IG indices, but it could also mean the difference between it affecting the spread of the components vs. the index itself. Given that JP’s opponents where hedging mostly using the components, JP was very exposed to the index/components basis.

§See the recent speech from Stefan Ingves here. Ingves says that “Major [Basel Committee] projects currently under way include: … completing the review of the trading book capital requirements. This entails an evaluation of the design of the market risk regulatory regime as well as weaknesses in risk measurement under the framework’s internal models based and standardised approaches.”

Loan pass throughs March 11, 2013 at 10:01 am

Mortgage backed securities began with pass throughs; these were simply bundles of mortgages in security form. The PT did what it said on the can, passing through payments on the underlying mortgages to the security owner, perhaps after a servicing fee has been taken. Only later did trenching come to the MBS market.

Now, it seems, pass throughs are coming to the corporate loan market. In particular, some European banks are trying to develop a repo market in corporate loan PTs. Nothing has, I understand, been done yet but the ambition is there.

Perhaps some of the lessons of the CDO market have been learned: certainly a PT with full transparency over the underlying loans is simpler than a tranche of a high grade CDO, especially a managed one. But nevertheless this is shadow banking, and one might worry about the procyclicality of haircuts.

Securitised loans are riskier than retained ones February 6, 2013 at 10:10 am

João Santos reports some interesting research on the NY FED’s blog:

We show that during the boom years of securitization, corporate loans that banks securitized at loan origination underperformed similar, unsecuritized loans originated by the same banks. Additionally, we report evidence suggesting that the performance gap reflects looser underwriting standards applied by banks to loans they securitize.

This is utterly unsurprising. What would be interesting to know is whether the current retention requirements fix this problem. My guess is that they don’t, as they are not big enough, but it is just a guess.

Quite a bit of connectivity in CDO of CLO land October 10, 2012 at 6:12 am

Yesterday I gave the broad outline of how to visualise cross holdings between CDOs of ABS: draw a graph whose nodes are CDOs and where there is an edge from A to B if A includes in its collateral pool a tranche of B. The strongly connected subgraphs of the total universe of CDOs – those where for every pair of nodes there is a path one way and another going the other way – are the irreducible messes. All of the CDOs in a strongly connected subgraph depend on all of the others. You can’t value any one in isolation: you have to consider all of them together. So… how big do the strongly connected subgraphs get?

Seriously big. Here’s one from CDOs of CLOs. Click to upsize, save, then wander around it using your favourite photo peaking tool. The full pic is quite large.

SCSG

Picturing CDO connectivity October 9, 2012 at 9:12 am

It is pretty much common knowledge now that as well as garden variety CDOs, there are CDO squareds – CDOs whose collateral includes tranches of other CDOs. What is a little less well known is that there are two kinds of CDO^2:

  • Ones where all the collateral CDOs (i.e. the ones the CDO^2 owns tranches of) have simple collateral;
  • Ones where one or more of the collateral CDOs is itself a CDO^2

The first case gives us a tree: simple collateral (bonds, pass throughs) used to build CDOs, whose collateral is used to build CDO^2s. The second gives us more complicated structures; for instance where CDO^2 A owns a tranche in B and B owns a tranche in A.

(This situation is sometimes known as disappearing mezz, as it is usually a game of swapping mezz tranches. Effective subordination of the senior is lower in this situation as the cross-held mezz is not really there.)

The structures get quite complicated: here’s a real-life example with 7 CDOs.

SCSG

Note that this structure is strongly connected: there is a path of ownership from every CDO to every other CDO. (Each of these CDOs own ordinary CDO tranches too: we haven’t pictured that to keep things simple.)

Just to whet your appetite, this is the third largest strongly connected collection of CDOs. The two bigger ones, though, are quite a lot bigger. More on this later in the week.

Securitization as a state sponsored enterprise September 10, 2012 at 2:40 pm

Amir Bhinde, writing in Bloomberg, has an interesting post which makes a few points. To begin, he makes the case that the growth of securitization was heavily influenced by state sponsorship:

The securitization revolution that really stifled traditional banking was led by Fannie Mae and Freddie Mac. The government-sponsored agencies paid banks a fee for originating mortgages that conformed to certain criteria, sparing banks the expense of in-depth analysis and losses from bad loans. Fannie and Freddie sold securitized bundles of the mortgages by suggesting they were as safe as Treasury bonds. Regulators then encouraged banks to buy the securities. Capital requirements for the residential mortgages that a bank kept on its books were more than twice those for mortgage-backed securities that had AA or AAA ratings.

This is broadly accurate; the GSEs were the parents of securitization, and (for reasons not wholly unconnected with the Pfandbrief market), RMBS are cheap for regulatory capital purposes.

The Bloomberg article then criticizes securitization for its reliance on ‘a few abstract variables’, and certainly we have seen that there is more to mortgage risk than stated income, LTV, FICO, and DTI. That said, if honestly sourced, these variables often do quite a good job at predicting the risk of a securitization. Often, though, is perhaps not good enough.

Amir’s next suggestions are more controversial:

To fundamentally reform the financial system, we need to end state sponsorship of securitization.

First, the federal government must stop guaranteeing mortgage securities. If lawmakers feel impelled to divert credit to homebuyers, the Small Business Administration’s approach of offering partial guarantees for housing loans would do less harm. Let the private sector securitize the loans if it can.

Second, banks should be required to evaluate the creditworthiness of every individual or business they directly or indirectly lend to, rather than outsourcing credit analysis to ratings companies or relying on reductionist statistical models. Allowing banks to buy securitized assets with only superficial knowledge of the ultimate borrowers is folly.

There are two issues here.

A correctly functioning government guaranteed (or for that matter covered) bond market provides a useful source of safe assets. That safety is worth more to investors than the cost to the state. What you do with the lower tranches – and who pays for them – is a different story*, but at least for the top tranches, securitization is performing a useful service for investors as well as borrowers.

The second problem is how credit is extended. Like it or not, the large banks have more or less killed off the loan officer in favour of statistical models for most retail and SME credit extension, not just for the securitized piece of it. If you want to go back to the prelapsarian world of local credit for local people, then banking is going to get a whole lot more expensive.

*Whether the state should subsidize home ownership or not, and by how much, is essentially a political rather than a financial question.

The hero in the shadows June 6, 2012 at 8:14 am

I was at an interesting meeting last week where it was suggested that one of the things we urgently need to do to remove some of the pressure in Europe is revive the European securitisation market. I can see the advantages, certainly, in terms of bank funding, but I think the sovereign risk obstacles – right now at least – are formidable. Still, it is a useful idea. The key ideas are:

  • Keep it simple. A small number of fat tranches, with no fancy CDO squared or IO tranches or anything like that.
  • Size. Big deals to enhance liquidity.
  • Transparency. There would be a free, publically available Europe-wide database containing all the loan details. This would facilitate independent credit analysis and increase confidence in the security.
  • Retention. Originators to be required to keep significally more of the security than currently, with no synthetic risk transfer permitted on the retained portion.

This all seems pretty sensible. Whether the buyers are out there, though, is another question. Once bitten, twice shy.

Conflicts of interest in securitisations: the SEC starts to act September 20, 2011 at 6:44 pm

There is an encouraging new notice of proposed rule making from the SEC regarding conflicts of interest in securitisation. The proposed rule would prevent sponsors of such deals from betting against them. It would moreover prohibit them from structuring deals whose primary motivation was to allow others to go short. (See here for comment from the NYT and here for the text of the proposed rule.)

Specifically

… a securitization participant would be prohibited from profiting from the decline of an ABS it helped to create (assuming that the conflict would be important to a reasonable investor), even if that securitization participant did not intentionally cause, or increase the likelihood of, such decline.

This would cover deals like Abacus where the motivation of selling the securities was to allow 3rd parties to short the underlying.

On a first read (the text is 118 pages long), the proposed rule seems more or less reasonable. While actively prohibiting securitisation sponsors is a good start, there is a need for a much more substantial retention rule too. I would require both originator and distributor of any securitisation to take a 20% vertical slice in the deal. (Compare this with the 5% current requirement.) In a second level CDO of ABS, there would be two distributors; that of the original ABS and that of the CDO tranches: each of these would have to retain 20%. This goes much further than preventing conflicts of interest: it actively aligns interests between distributor of the deal and buyers of the ABS.

It makes sense to prohibiting deal sponsors or originators from shorting the deal. But what about third parties? Here I am less convinced. If I know that a third party (Paulson, say) has created the deal in order to short it, and I still buy it, isn’t that my problem? I wouldn’t make it illegal: I would just say that buyers need to know all the facts behind the deal including its motivation and the presence of any shorts. So disclosure should resolve the issues around third party shorts. Of course, reputationally, few originators would want to bring a deal to market where they had to disclose that the deal motivation was to facilitate a short, but that that is another matter entirely.

On the risks of synthetic structures September 9, 2011 at 12:41 pm

Ever since synthetic CDO became for many a long way of saying trash, investors have been nervous about synthetic structures. The recent kerfuffle about ETFs is one example of this. Let me do a little fact from fiction separation here.

In a synthetic structure someone wants to take exposure to some asset class and someone is providing it. For instance a fund may wish to track the FTSE 100 without the tedious and expensive business of owning the component shares. Therefore it enters into a swap where it receives the total return on the index and pays some financing rate. So far, so straightforward.

An major division in synthetic structures is between those where the exposure provider owns the underlying asset and those where they don’t. In the simplest and safest version of the structure, the exposure provider owns exactly the asset they are providing exposure to, and they pledge this asset as collateral against the swap. (Typically this happens when the exposure provider has advantages that the exposure taker does not, such as better market access or an advantageous tax position with regard to returns on the asset.) Here the worst that can happen in the event of failure of the exposure provider is that the exposure taker seizes the asset. Providing that they can legally own the asset, this is highly likely to involve little or no loss: counterparty risk is minimal.

In any other version of the structure, there is are more risks. These can include the exposure provider having difficulty in providing the promised return because they don’t own the asset, and counterparty risk, especially if the structure is leveraged and/or the collateral posted against the swap does not cover the exposure. Morningstar has a good discussion of the issues for ETFs here. (Another risk arises if the return the swap provides is not precisely the one the exposure taker wants, but we won’t discuss that.)

Why were synthetic CDOs so dangerous? Well part of the answer at least is that the exposure provider often did not own the asset. Indeed, sometimes the structure was created because the exposure provider wanted to be short. This was (probably) the case for Goldman’s famous Abacus deal, for instance.

One particular issue here is that if the exposure provider owns the asset, then the derivative has not changed the market for the underlying. Instead of the exposure taker buying the asset (and hence presumably increasing its price), the exposure provider buys it instead. The market in the underlying is unaffected. However if the exposure provider is short synthetically – through providing exposure but not hedging that obligation – then the existence of the derivative has changed the market in the underlying.

An extreme example of this is where there is more exposure written than there is underlying available and this fact is not evident to market participants. For instance, suppose I sell physically settled CDS protection on more notional of a corporate bond than has been issued. Clearly if there is a credit event the CDS buyers will not be able to find enough bonds to deliver to me, and the market in the bonds will be disrupted. The Amherst trade is a great example of this.

Personally I think that one of the great advantages of trade repositaries is that they could be used to ensure that a false market in the underlying does not develop. If market participants knew what was going on synthetically just as they know (thanks to exchange reporting) what is going on in the cash market, then prices will better reflect the real supply and demand in the market. A real systemic risk of synthetic structures is that they can be used by people to hide what they are doing: now that the technology exists to eliminate this loophole, it should be used.

Do we need informationally insensitive debt? April 17, 2011 at 5:22 pm

Yes we do. Felix Salmon is wrong. Let me explain.

First, what is informationally insensitive debt?

financial assets which (normally) don’t change in price when new information about them emerges

That’s not a good definition, actually, as there are no assets (apart from cash) which satisfy it. But it hints at a more useful definition, namely an asset whose credit spread does not change when more information about its issuer becomes available. A good example is a government bond from a genuinely AAA issuer. (See here for a longer discussion from Gary Gorton where he mentions the content of a CDS spread and conjectures that the universe of informationally insensitive assets has declined thanks to CDS trading.)

Now, Felix thinks assets like this are a bad idea because “bankers and other financial innovators the world over have every incentive to structure products which turn risky assets into informationally-insensitive debt“. These then “cause crises“.

I see it entirely the other way. The absence of enough genuinely informationally insensitive assets caused a demand which was met by the creation of almost, but not quite informationally insensitive ones, namely AAA-rated ABS. There is a massive demand for informationally insensitive assets, notably from those with low risk tolerance. We need more of them, as I suggested in my posts on policy on the asset side. Indeed, as Matt Yglesias says:

we need to do something—like maintain the existence of a large pool of federal debt—to make sure that the world has the quantity of information-insensitive debt it needs to continue routine operation.

Augustinian stability November 26, 2010 at 6:06 am

The Bond Vigilantes have some thoughts on financial stability and bank bail-outs.

Taxpayers should be protected. Deposits should fund loans, and loans shouldn’t outgrow deposits to too large an extent. As a result, taxpayers shouldn’t be on the hook again for the banks, and if they did, it would be far easier to tolerate than it has been bailing out the investment banking system. And the deleveraging that we so need to happen to the financial sector could at last happen.

All reasonable stuff. The problem is that the economy’s demand for credit is far larger than the deposits available to fund it. So either you need more deposits or you need less credit. The first implies impossibly higher savings rates; the second, a dramatic and long-lasting recession. A big dose of inflation would help but of course that has other highly negative consequences. Reviving the securitisation and/or covered bond markets would also be good, but that is not looking very likely at the moment. What we face here is a serious how to get there from here problem.

Hold to maturity? November 2, 2010 at 10:39 am

Here’s an interesting idea from Daniel Beltran and Charles Thomas via FT alphaville. Talking about the role of asymmetric information in the collapse of private-label securitisation prices during the crisis, they recommend:

the government buy relatively low value securities and commit to holding them until maturity. The government has no better information than any other buyer. What makes the government special, and hence provides a role for policy, is that it is the only agent that can credibly commit to not sell the securities before they mature. The policy is useful because after the government makes its purchase the market for the remaining securities reopens and these remaining securi- ties trade at prices closer to intrinsic values. Although this policy involves a cost to the government, the cost is smaller than the gains that arise from having the market reopen…

Now I see the idea here but I am not sure that this is precisely right. The issue the authors are trying to address is that securities were trading at prices which were likely far below fundamentals, but that people were reluctant to buy them (a) because they weren’t sure this was true and (b) because thought that the prices might nevertheless fall further. There is also (c) the difficulty of funding the securities due to (a) and (b).

I guess if the government buys and holds then their assets won’t come back and (b) is less likely. They should make a profit. But I’m not sure that it is the most effective use of dollars. Instead the government could offer to repo the assets to term for private buyers, roughly as the TALF did. The loans should be recourse, and they should be available for the lowest rated securities. At least that way the government won’t be suckered into loading up on those ABS that won’t recover more than their selling price…

Lawyering up and the foreclosure losses October 16, 2010 at 12:32 pm

Shack

Unlike many, whose righteous indignation is driven by moral certainty, I am in two minds about the foreclosure mess. There seem to be many different things going on here.

  • There are clear operational errors, as in getting the wrong address on a mortgage document. Obviously this is indefensible, and banks should get this kind of thing right. Equally clearly, if you have a three million mortgages, then you are going to have some mistakes. The problem seems to be not that mistakes happen, but that the banks have cut costs so far that they don’t have processes in place to detect and fix them. There can be no excuse for breaking into the wrong house and changing the locks, as has apparently happened, and I see no difference in law between that and plain burglary.
  • Continuing on the related theme of cost cutting that ends up costing so much more, there is the MERS problem. Do MERS documents actually work, in the legal sense of transferring ownership? I have no idea, but if they don’t, that’s a problem.
  • Will the uncertainty over the legality of foreclosures crush the housing market, especially given the increased cost of title insurance?
  • If it turns out that the ownership chain in many, perhaps even most securitisations are fatally compromised, is there anything to be done or are most US RMBS affected? This is a huge deal potentially, but so uncertain no one can predict the outcome yet. My guess would be that it is so important that it will get fixed regardless of the actual legal position.
  • There will almost certainly be reps and warranties litigation by both protection sellers on RMBS, and purchasers of RMBS.
  • This leads me to the unpalatable truth that many of these foreclosures are, at the end of the day, fair. The mortgagees are not paying. Now of course some of these mortgages were mis-sold. But there is a good chunk, at least, where people perfectly well understood that they could not afford their mortgage and took it out anyway. They do not deserve to live rent free. Once the first bloom of (perfectly reasonable) anger about the bank’s bad operational practices and disdain for the word of the law is over, I hope that that fact is more widely acknowledged.

In the meantime, though, it would be a brave investor who bought either bank shares (at least of any bank with exposure to US mortgages or US mortgage securitisations) or US RMBS.

European MBS June 20, 2010 at 2:22 pm

European AAA MBS spreadsAn interesting data point here. This is the spread history of European 3-5y AAA CMBS spreads and RMBS in various countries. Clearly the AAAs, well, aren’t, but confidence is returning to some extent. The RMBS have always been better, and in somewhere like the Netherlands, where default rates have historically been rather low (partly because recourse is so extensive there), the AAAs will doubtless come in further. I doubt we will see new issues in France at more than 200 over, but clearly conditions are approaching levels where new RMBS might make sense for some issuers.