Reperforming loan securitization volumes could get a boost from a large scale deal the Carlyle Group is reportedly working on, according to a Bank of America Merrill Lynch research report.
The Bank said that the outstanding loan volume of repeforming mortgages is around 7.6 million with a total unpaid principal balance of $1.3 trillion.
Reperforming loans are loans where a borrower became delinquent and has since become current on scheduled mortgage payments. The loans are typically modified to better accommodate monthly payments.
Investors like the asset class because of the favorable capital treatment the loans get compared to other securitized products. According to BofAML, trading activity for the asset class has increased over the “last few months.”
But securitization deals backed by the asset class tend to be smaller compared to jumbo RMBS and the market is dominated by a few small firms.
BofAML calculates that approximately $5.7 billion in reperforming securitizations have been done in the first three quarters of 2013, compared to $6.8 billion for the full year 2012.
However volumes in the asset class could get a boost from the Carlyle Group’s large-scale acquisitions of these homes loans which it will reportedly fund via the securitization market. Carlyle Group did not return comment for this story.
“Given the resources and size of Carlyle Group, the market may see a substantial boost in issuance in 2014,” said BofAML analysts in the report. “If these deals were issued with a larger notional balance, it may attract larger investors who have not been active participants in the market thus far.”