Written by Adam Tempkin from Bloomberg on February 25, 2019.

February 2009 – the securitization community holds its annual conference, unrecognizable in the shadow of the housing crash. Frustrated industry experts see opportunity for revitalization amidst the nation’s financial ruin: a new era of securitization, defined by risk management, transparency, and consumer protections.

A decade later, the community gathers again, presiding over a safe, robust market in an unprecedented period of expansion. Now hosted by the Association at Las Vegas’ Aria Hotel and Casino, the 2019 conference set record attendance, marking the industry’s enormous progress in the decade since the Great Recession.

Conference participants, led by the head of investor policy at the Association, Kristi Leo, look to extend their record of proactivity, considering the risks associated with untenable growth and a contracting credit cycle. “This summer marks the longest cycle of expansion that we’ve ever had,” Leo told a conference audience, “So people are saying, ‘How much longer until that cycle hits its end? What is going to signal the end of the cycle?’ Everybody has different views. It’s going to be widely discussed, as it can mean both risks and opportunities.”

Asset-backed spreads have tightened considerably over the last twelve months, diminishing relative value for industry investors. Concerns around a potential corporate credit and leveraged lending bubble continue to grow. Many regulators worry that the burgeoning CLO market is unprepared to withstand an impending period of economic downturn.

With demand for non-qualified mortgage transactions rising, investor activity in the private-label residential mortgage-backed securities market is growing. Though interest in non-prime collateral provokes some concern, SFIG remains confident in the consumer protections and risk aversion of the modern securitization industry. “Ultimately,” Leo says, “securitization as an investment is very different than what it was going into the Great Recession. People are feeling better about it; structures are different, and people are being thoughtful.” With new federal protections, the consumer, too, is more safely positioned.

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