Once again MBS titan Lehman Brothers took the crown for year-to-date mortgage-backed issuance - with $19.16 billion in proceeds, according to Thomson Financial Securities Data - but even the top underwriter's numbers represent an approximate 46% drop from the $34 billion the shop had underwritten by the end of the third quarter 1999.

"Business is down across the board for everybody, and economic conditions still prevail here - with higher interest rates, the shape of the American consumer changing, the saturation in the commercial mortgage business, and overall consolidation, times are very different for the mortgage markets," said Martin Harding, the head of MBS at Lehman. "Everybody thought the old rules were going to apply in the last couple of years, but in the mortgage market, as in other markets - ever since Long Term Capital - we're going into new territory."

Although a shop like Lehman has always maintained MBS as a core franchise, other shops have business models that are changing with the times, Harding said, and many players are actively seeking ways to enhance their businesses.

For instance, Countrywide continues to buy servicing from companies in the subprime mortgage sector.

"With higher interest rates and a slowing economy - which leads to slower origination volume in the mortgage sector - originators are looking for ways to keep the business going, and Wall Street continues to try to find ways to repackage or expand the boundaries of what it could do," Harding noted.

According to Harding, a macro-economic event could easily cause many rapid changes in the market. For instance, the Fed could possibly cut rates early next year. During this "interim period," however, mortgage originators get "leaner and meaner" and consolidation continues.

"Mortgage originators begin to employ new technology and understand more efficient ways to originate, but if a major event happens, it might not turn out well for originators," Harding said. "A lot of mortgage originators have gotten fat at times and like anything else, if you have to scrimp and scratch - when it gets more plentiful, you can take more of it in."

Overall, however, Harding predicts that the MBS market will "see more of the same," though the first quarter, with a new president, could lead to a potential relief on rates.

"I think that if Bush wins there will be more activity in the future, and if Gore wins, it might be more of the same - I'm not sure you'll have as robust an economy," Harding said. "But either way, until the next tangible positive or negative economic event, we'll just see more of the same."

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