Total Securitization of Consumer Loans
By Barry Ritholtz - July 30th, 2010, 12:30PM
I honestly have no idea what this means, but jeez, how is this for some cliff diving:
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Chart via St. Louis Fed
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This is what the BOG reports on the G.19. The footnotes on g.19 state the following:
-Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators.
-The shift of consumer credit from pools of securitized assets to other categories is largely due to financial institutions’ implementation of the FAS 166/167 accounting rules.
De.li.cious
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July 30th, 2010 at 12:44 pm
Yikes. Well, to be fair, form what I understand 166 forces institutions to bring certain things back to the balance sheets. The FASB says:
So maybe that big drop was assets coming back to the balance sheets plus maybe assets being marked down on the balance sheet that hadn’t been marked down under the securitization model? I’m guessing on this last point based on what I took-in from this
July 30th, 2010 at 12:58 pm
A picture can paint a thousand wrong words.
Auto securitizations are through he roof.
The home equity was supposed to be bad thing, right? House is not a piggy bank.
Banks may be retaining credit card debt. The NIM is fairly high as consumers are defaulting on
mortgages while paying credit card debt, and banks have zero borrowing cost right now.
July 30th, 2010 at 1:00 pm
X on the MTA Says:
Yikes. Well, to be fair, form what I understand 166 forces institutions to bring certain things back to the balance sheets.
— Reply
bringing the assets and liabilities back — right where they belong. Need to take care of the manipulation via Repo105 as well.
Its hard enough to chase the manipulators through the financial disclosure documents and the hundreds if not thousands of footnotes, but when the insiders collude with the accountants and auditors to cloak the “innovations of wall street” to the point of publishing fiction then when the s*it hits the fan investors lose confidence and bail out — much like the cliff diver in the graph.
July 30th, 2010 at 1:39 pm
Does this mean that banks are not securitizing consumer loans because: a) they cannot sell those securities to others, and b) they do no longer have the “accounting advantages” of being able to use the securities to move loans of their balance sheets.
July 30th, 2010 at 1:46 pm
Americredit here in the DFW area does securitized subprime auto loans. Also loans for DIY home improvement places. I would say this is a bad omen for consumer spending.
July 30th, 2010 at 2:00 pm
gold star for whoever put the cliffdiver on the graph
July 30th, 2010 at 2:12 pm
X has it right. At the same time, you saw a big jump in outstanding loans at commercial banks, even though net new lending is still falling. So the loans went to the banks as assets and the securities as liabilities.
Balance sheet wise, it was a wash, but it almost certainly will mean a further downward pressure on lending.
July 30th, 2010 at 2:19 pm
Yep, X has the right take. And banks will make far fewer loans if they can’t lay the risk off on somebody else.
July 30th, 2010 at 2:33 pm
That is a dramatic graph. However, I think it depicts GAAP accounting changes and not drastic declines in outstanding consumer loan volumes.
FASB 166/167/FIN 46R are now Accounting Standards Codifications (ASC) 805, 810, and 860. It’s about complicated sale/transfer/servicing accounting and structured transactions. The new (beginning 2010) standards did away with most “qualified special purpose entities” (QSPE’s) and material amounts of formerly “sold” or “transferred” loan pools may be returned/consolidated back onto the seller banks’ balance sheets as financings. The variable interest entity (VIE) concept was at play here. The Federal bank regulatory reporting has, I think, a four quarter phase-in feature for risk-based capital.
“Reporting Guidance for the Optional Transition Mechanism for Risk-Based Capital Requirements Associated with the Implementation of FAS 166 and FAS 167.” The guidance explains how a bank electing to apply the transition mechanism for eligible securitizations and asset-backed commercial paper conduits would report its risk-weighted assets and allowance for loan and lease losses in Call Report Schedule RC-R, Regulatory Capital. The guidance will be posted on the FFIEC Web site on the Web pages for both the FFIEC 031 and FFIEC 041 Call Reports.
Probably, banks will need to hold additional capital because the balance sheets will retain formerly sold loans in total assets for regulatory capital ratio calculations, i.e, the denominators will be increased, compared to the old GAAP standard.
July 30th, 2010 at 2:40 pm
IMHO, you couldn’t draw a better picture on Deflation.
July 30th, 2010 at 2:51 pm
It may be that the Fed is buying them. If not, they soon will be.
July 30th, 2010 at 2:54 pm
Is there an equivalent graph for Mortgages, Helocs and all other loan products? I think that’d be a better graphic (probably looking identical but the scale would be different) this is “only” 700 billion at the peak. I’d love to see the real number for all securitized products.
July 30th, 2010 at 2:54 pm
LOL KD. I just noticed the cliff diver! Perfect. Where’s Evil when you need him?
July 30th, 2010 at 3:01 pm
It does appear to be mostly the accounting change, here is where I think that money that disapeared went:
http://research.stlouisfed.org/fred2/series/TOTALCB?cid=101
July 30th, 2010 at 3:06 pm
Very interesting explanation. find the 166/167 story fascinating. but..
If it’s servicing rights the market has responded with new mechanisms. Total Return Swaps emulating IO’s
July 30th, 2010 at 3:22 pm
@Effective Demand
It’s all released by the fed. see: http://www.federalreserve.gov/econresdata/releases/statisticsdata.htm
July 30th, 2010 at 8:32 pm
it means what it states it means; what ever was in the pool has dried up and blown away.
July 30th, 2010 at 10:45 pm
Securitization to subsidization in one giant leap of faith.
July 31st, 2010 at 9:12 am
Invented Credit used to rule the world, now our castles are discovered to stand on pillars of salt and and pillars of sand…Viva la Vita
July 31st, 2010 at 12:41 pm
i think it just means that the former buyers (investors aka suckers) learned that wall street was selling junk, and the rating agencies were useless, and a lot buyers who are restricted in what they can buy (think pensions, 401k funds) have less money to invest, and maybe their regulators aren’t buying the rating scam any more and wanting more proof? with investors out, and the others unable to participate any more, the originators are stuck keeping the loans. only mortgages have any help, the GSE’s still buy, just maybe not so much
August 1st, 2010 at 11:41 pm
70% of credit created during boom years (2001-2006) was due to SECURITIZATION of consumer loans incl housing, HELO, auto, CC and student loans! So easy money ( creating credit out of thin air) creation by shadow banking is KAPUT! Good riddance!