NEW YORK, Dec. 13, 2011 /PRNewswire/ -- The future role of
the government in housing finance is a current subject of debate
among legislators, policy makers, regulators and market
participants. All agree, however, that attracting private
capital into the $10.4 trillion US
mortgage market is integral to building a stable foundation to
support the market's future growth. A new white paper written
by key members of AllianceBernstein's Structured Asset Portfolio
Management and Research team, Matthew D.
Bass and Michael S. Canter -- "Increasing the Role
of Private Capital in the Mortgage Market" -- provides valuable
insight into how to address this critical issue.
The purpose of the white paper is to advance the discussion
regarding how to attract private capital into the mortgage market
based on AllianceBernstein's perspective as an investor in mortgage
assets. Specifically, the paper details three key
principles regarding the role of private capital in the mortgage
market; provides two potential market-based solutions for private
capital sharing credit risk with the government; and proposes a
transition path.
First, government involvement in the mortgage market is
necessary to ensure a stable, well-functioning market;
Second, because the private market is better positioned to price
risk, private investors should provide first-loss capital to the
mortgage market to protect taxpayers from losses, while the
government should provide catastrophic loss insurance to ensure
stability in periods of market stress and to maintain the credit
risk-free nature of Agency MBS;
Third, in order to provide a more stable foundation for the
housing market going forward, private first loss capital should be
unlevered and the first loss piece should not be credit
tranched.
By way of highlighting solutions for private capital sharing
credit risk, Bass and Canter suggest that to ease the transfer of
risk to private capital the government can begin to move
forward quickly without the need for
new legislation by reintroducing transactions that
enjoy successful precedents such as Freddie Mac's Mortgage
Default Recourse Notes (MODERNs) and K-Series
transactions.
Noting that transition will take time, Bass and Canter advocate
that the greatest chance of success will depend on the development
of multiple private-capital based options to provide the broadest
and deepest investor base. They note that there is secular
demand for income producing assets like first loss mortgage risk
from longer-term investors such as pension funds, sovereign wealth
funds and insurers with longer-duration liabilities.
In conclusion, Bass and Canter emphasize that "quality" of
housing finance, or the long-term stability, should not be
sacrificed for "quantity," or lower mortgage rates achieved through
increased leverage in the system, noting that in the past the
result was an unacceptable degree of volatility in home
prices. "The process of bringing private capital into the
mortgage market will take time," say Bass and Canter. "If
these changes are well communicated and the market is structured
appropriately, we believe that there is a deep investor base that
is ideally positioned to invest in first-loss mortgage risk over
the long term."
You can access the white paper "Increasing the Role of Private
Capital in the Mortgage Market" by clicking here.
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this news release
are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risks, uncertainties, and other factors
that could cause actual results to differ materially from future
results expressed or implied by such forward-looking
statements. The most significant of these factors include,
but are not limited to, the following: the performance of financial
markets, the investment performance of sponsored investment
products and separately-managed accounts, general economic
conditions, industry trends, future acquisitions, competitive
conditions, and current and proposed government regulations,
including changes in tax regulations and rates and the manner in
which the earnings of publicly-traded partnerships are taxed.
AllianceBernstein cautions readers to carefully consider such
factors. Further, such forward-looking statements speak only as of
the date on which such statements are made; AllianceBernstein
undertakes no obligation to update any forward-looking statements
to reflect events or circumstances after the date of such
statements. For further information regarding these
forward-looking statements and the factors that could cause actual
results to differ, see "Risk Factors" and "Cautions Regarding
Forward-Looking Statements" in AllianceBernstein's Form 10-K for
the year ended December 31, 2010 and
subsequent Forms 10-Q. Any or all of the forward-looking
statements made in this news release, Form 10-K, Form 10-Q, other
documents AllianceBernstein files with or furnishes to the SEC, and
any other public statements issued by AllianceBernstein, may turn
out to be wrong. It is important to remember that other
factors besides those listed in "Risk Factors" and "Cautions
Regarding Forward-Looking Statements", and those listed above,
could also adversely affect AllianceBernstein's financial
condition, results of operations and business prospects.
About AllianceBernstein
AllianceBernstein is a leading global investment management firm
that offers high-quality research and diversified investment
services to institutional investors, individuals and private
clients in major world markets.
At September 30, 2011,
AllianceBernstein Holding L.P. owned approximately 37.8% of
the issued and outstanding AllianceBernstein Units and AXA, one of
the largest global financial services organizations, owned an
approximate 63.1% economic interest in AllianceBernstein.
Additional information about AllianceBernstein may be found on
our internet site, www.alliancebernstein.com.
SOURCE AllianceBernstein