J.P. Morgan is rethinking its forecast for non-agency RMBS issuance; it now expects 2014 volume to fall short of the $15 billion it had anticipated at the start of the year.
“It seems unlikely to expect that much this year given we are already two months into the year and we’ve barely seen $1 billion in issuance,” John Sim, head of non-agency MBS research the firm, said at a securitized products research conference Thursday.
So far this year there have been three deals: Citigroup's $374.3 million Citigroup Mortgage Loan Trust 2014-A, Credit Suisse's $282 million CSMC Trust 2014-IVR1 and JP Morgan's $373 million JPMMT 2014-1.
While J.P. Morgan may have overestimated RMBS issuance, it likely underestimated the potential volume of "risk-transfer" deals by Fannie Mae and Freddie Mac. The bank initially expected issuance to range from $5 billion to $6 billion, but now “we could see up to $10 billion depending on what they do,” Sim said at the conference, which was webcast.
These risk-transfer deals are general obligations of the government-sponsored entities but are linked to the performance of a pool of mortgages guaranteed by the issuer. Sim said that there have been discussions about the potential for larger transactions tied to the risk of mortgages with higher loan-to-value ratios than those linked to the initial deals.
So far this year, there have been two risk transfer deals: Fannie Mae priced its $750 million CAS 2014-C01 deal in January and Freddie Mac returned to the market in February with the $1.0 billion STACR 2014-DN1.
Freddie's latest deal exhibited some of the characteristics that Sim discussed at the conference. For example, unlike the previous GSE risk-sharing securitizations, which offered only two tranches (M1 and M2) to investors, Freddie’s deal consisted of three tranches with different levels of credit support. According to Freddie Mac, 65 investors participated in the offering, a number much higher than the one observed in previous deals.