for Investment Portfolios September 24, 2015 Adam Bareham, Valuation Services Director 212-542-9730 Adam.Bareham@us.gt.com
Agenda: I. Current Landscape II. Valuation III. Reduced Underwriting Standards IV. Regulation V. Summary VI. Q&A
I. Current Landscape
The Federal Reserve Decision Still historically low interest rates Global Trouble Spots Search for Yield
History US Debt Issuance (bn) 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mortgage Muni Treasury Corporate
Reuters: September 21, 2015
The search for yield has led to increased Alternative Asset investments. With a renewed focus on the U.S. ABS (Autos (especially sub prime), Credit Cards etc.) CLOs (Leveraged Loans) Commercial Mortgage-Backed Securities (CMBS) Non-Agency RMBS Potentially the riskier tranches
When interest rates do rise Decreased value of many fixed income investments Increased default possibility Potential decrease of available credit
II. Valuation
Alternative Investment Less Liquid Evaluated Price Level 3 Pricing Vendor Price Differences
can be mitigated by: Appropriate Pricing Vendor Internal Expertise By Asset Class Pricing Policies & Procedures Vendor Due Diligence Auditors need to have valuation expertise
III. Reduced Lending/Underwriting Standards
Why? Emerging Risks Part of a typical Credit Cycle Keep volume up Those who were able to refi by higher standards already have Examples: Lower FICO Higher LTV IO Products Option ARMs
Reduction in Underwriting Standards across many asset classes: Auto Loans / Leases Commercial Loans Mezzanine Loans Even some Residential Mortgage Loans 97% LTVs
Decreased UW Standards Rising Interest Rates Trouble
IV. Regulation
Risk Retention CLOs 5% Retained Interest Non- QM RMBS ABS CMBS Issues: Following all the Regulations Ties up Capital Decreased Competition Pushes out smaller players Expensive May not prevent another crisis
V. Wrap Up - Summary
Valuation Reduced Underwriting Standards Regulation
VI. Q&A
Adam Bareham, Director, Forensic and Valuation Services Adam is a Director in the Forensic and Valuation Services practice of Grant Thornton LLP in New York. He has more than 20 years of experience serving the financial services industry. Adam has extensive experience in the structuring and valuation of securitized products including: Non-Agency RMBS, Non-Agency CMBS, Agency RMBS and CMBS, CDOs, CLOs, Student Loans, Auto Loans/Leases, Reverse Mortgages, Franchise Loans, Whole Business Securitizations, Structured Settlements, Interest Rate Swaps & Locks, Derivatives as well as Corporate and Municipal Debt. Additionally, Adam values residential, commercial and consumer loan portfolios and their related Servicing Rights. He has constructed modeling and analytical platforms for structured products of all asset types, for model validation as well as for economic forecasting. Adam leads Grant Thornton s Structured Products Services team which provides Agreed-Upon Procedures for new securitization transactions. These services include cashflow modeling, collateral stratification and loan file due diligence. Adam also routinely speaks at conferences and advises clients on Other Than Temporary Impairments on structured products, specifically as they apply to U.S. GAAP, CCAR and BASEL II&III and Level 3 securities. Prior to joining Grant Thornton LLP, Adam was most recently a Director of Securities Valuations at DTCC where he focused on the daily valuation of Mortgage and Asset Backed Securities, Derivatives as well as Corporate and Municipal Debt. Prior to that he was a Senior Manager in the Financial Instrument Valuation & Securitization practice of Deloitte & Touche LLP where he built cashflow models and oversaw the performance of cashflow modeling, due diligence and valuation services for a wide range of structured products. Adam began his career at The Bank of New York as a Mortgage-Backed Securities Analyst and eventually managed the team responsible for the calculation of monthly payments for mortgage-backed and asset-backed-securities, created bond waterfall models based on transaction documents and created Payment Date Distribution Reports for bond holders. Adam has an MBA from the University of Michigan, Ann Arbor and a Bachelor of Science in Economics from Manhattan College. 212.542.9730 Adam.Bareham@us.gt.com
John Swanick National Insurance Advisory Practice Leader BAS Insurance Regulator Leader Grant Thornton LLP Two Commerce Square, 2001 Market Street Philadelphia, PA 19103 United States T (direct) 215 814 4070 T (mobile) +610 246 2156 E John.Swanick@us.gt.com LinkedIn: www.linkd.in/grantthorntonus Contact Information T. Adam Bareham FVS Director - VS Grant Thornton LLP 757 Third Avenue, New York, NY 10017 United States T (direct) +1 212 542 9730 T (mobile) +1 908 528 6645 F +1 212 370 4520 E adam.bareham@us.gt.com W www.grantthornton.com