Despite a politically charged first half of 2000 and a dramatic slowdown in origination versus previous years, the usual suspects once again topped the league tables for residential mortgage-backed securities. MBS stalwart Lehman Brothers kept its year-to-date No. 1 position for lead book manager and Credit Suisse First Boston took the crown for the second quarter alone, according to Thomson Financial Securities Data.

On a year-to-date basis, Lehman Brothers ranked first for RMBS, with proceeds of $12.3 billion and 20.5% of the market share. Credit Suisse First Boston, with $9.7 billion in proceeds and 16.3% of the market, took the second position in the year-to-date tables, moving up from No. 4 for the same time period last year; and Merrill Lynch & Co. came in third for the first half of 2000, with $7.1 billion in proceeds and 11.9% of market share. For the same time period of 1999, Merrill was ranked No. 5, with $16.9 billion in proceeds.

For the second quarter alone, however, Credit Suisse First Boston came in first with $3.98 billion and 19.1% of the market share; this is an improvement from the No. 2 position which CSFB laid claim to for the first quarter 2000. Merrill Lynch also moved up in the rankings since the first quarter, placing No. 2 for the second quarter, with $3.12 billion in MBS, up from a rank No. 4 for the first quarter. Rounding out the top three positions for 2Q was chart-toppers Lehman Brothers, with $2.73 billion done between April and June.

During the same time period last year, Lehman Brothers was ranked No. 1 - the slight slip no doubt a symptom of the overall swoon in residential mortgage market origination.

Also noticeable during this difficult period was the disappearance of Salomon Smith Barney from the top three positions, where the RMBS titan usually stands strong. For year-to-date, SSB dropped from a No. 3 position for the first quarter to a No. 4 position in year-to-date underwriting, with $6.04 billion in proceeds for the first half 2000.

Moreover, for the second quarter itself, Salomon dropped to No. 8 for overall MBS, with approximately $1.3 billion in proceeds. However, the investment bank ranked No. 2 for agency-only debt issuance.

Given the maturity of the market, a rising interest-rate environment, and questions regarding the future of the GSEs' status during an election year, it seems that lately the mortgage market has been more concerned with qualitative issues, rather than quantitative ones.

"The political beat in the market has definitely supplanted other news items that would usually be more newsworthy," said Martin Harding, a Lehman Brothers managing director and co-head of MBS and ABS finance. "During this political year, there is a lot of controversy around Fannie Mae and Freddie Mac, as well as more attention being paid to issues such as predatory lending. It will be very interesting how it will play out between now and the rest of the year."

"Lower volume was a trend first quarter and clearly the trend doesn't appear like it is going to change for the second quarter," added Matt Ruppel, co-head of mortgage trading at CSFB. "Bank activity was significant during the quarter. The size of transactions is bigger but the frequency is lower."

Indeed, most mortgage players are paying much closer attention to the political agenda affecting the market rather than waiting for some new innovative structure to affect the market.

"There are going to be more arbitrage deals that won't be splashy, so from a profitability standpoint we'll be adding to revenue," Harding said. "But there won't be any new innovative blockbuster events or structural breakthroughs capturing our attention."

Countrywide's Servicing Platform

Still, one interesting phenomenon that Harding points out is the need for major market players to look for different ways to raise revenues during this slow MBS market.

"Every traditional mortgage originator is going through a cathartic event where they're saying, In a booming economy our business is extraordinarily weak,' Harding said. "It's like when the Apollo 13 filter mechanism broke, and they dumped all the components on the table and said, Find a way to fix it!' In the mortgage market they're saying, There's no loan production, so find a way to make money!'

"It's interesting to see how the different parties out there are looking for different ways to enhance their business and make money. It seems to me that the servicing platform is a vehicle/component that is being concentrated on."

Indeed, with all the consumer activity going on in terms of lending and debt, Harding predicts that the loss and delinquency performance on mortgages in the next few years is going to start to turn.

On the lending side, Fannie, Freddie and Countrywide are branching out to different areas in order to increase revenue. For instance, Countrywide is said to be strongly emphasizing its servicing platform, going after the highest ratings in servicing so it could garner more and more third party servicing.

This, in turn, is a hedge against the lower origination volume which has befallen the RMBS market.

"It's very interesting to see where it's going to go in terms of pricing," Harding said. "Some of the initiatives [Countrywide] has are pretty bold."

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