The American Council of Life Insurers (ACLI) wants insurance regulators to distinguish between different types of non-mortgage asset-based securities (ABS) when rating ABS assets.
The Valuation of Securities Task Force at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., has included a copy of an ACLI paper on the topic in a packet of materials for a task force session set to take place Aug. 30 in Philadelphia, at the upcoming NAIC summer meeting.
Many agenda items relate to residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS).
The NAIC has been using a homegrown mortgage-backed securities (MBS) evaluation system because of concerns that ratings from “accredited rating organizations” (AROs) — rating agencies approved by the NAIC — have performed poorly in recent years.
Tim Leaycraft and Eric Kolchinsky, consultants, presented a sobering mid-year report on the residential and commercial real estate markets. “House prices nation-wide have deteriorated and home price projections have been adjusted downwards,” the consultants say.
Delinquency rates for subprime borrowers who took out loans from 2005 to 2007 are approaching 50% but are starting to come down; delinquency rates for prime borrowers are much lower but still rising. Because of the effects of the high unemployment rates on prime borrowers, delinquency rates for prime borrowers who took out loan in 2005 are over 10%, and delinquency rates for prime borrowers who took out loans in 2006 and 2007 are close to 20%.
In the residential real estate market, “demand is hampered by stubbornly high unemployment and much stricter loan underwriting,” the consultants say.
In the commercial real estate market, vacancy rates have stabilized and apartment complex rents have returned to 2008 levels. The main threats to that market are the soft U.S. economy and uncertainty in the capital markets as a result of the European debt crises,
“There is currently no clear pathway to deal with the [more than] $250 billion of CMBS loans maturing in 2015-2017,” the consultants say.
The ACLI ABS paper covers a different but related topic: The performance of U.S non-mortgage ABS.