Confirming its long-standing reign over the mortgage-backed securities market, Lehman Brothers Inc. has once again maintained its number one position atop the manager rankings league tables for MBS issuance, for both the entirety of 1999 and for fourth quarter 1999, according to statistics provided by Thomson Financial Securities Data.
With 174 issues and 13.9% of the market share, Lehman issued $41.376 billion worth of mortgage-backed debt in 1999, and more than $7.1 billion during the fourth quarter. Salomon Smith Barney also made a strong showing last year, with $34.514 billion and 11.6% of the market share during 1999. Merrill Lynch & Co. rounded out the year-to-date statistics, coming in third for mortgage-backed debt, with $30.731 billion for 1999 and 10.3% of the market share.
For the period of October 1 through December 31, 1999, Lehman Brothers held steady at number one, while Greenwich NatWest came in second with $5.67 billion in proceeds and Merrill Lynch came in third, with $5.64 billion for the fourth quarter.
"The way we approach the market is just very broad-based and balanced," said Martin Harding, a Lehman Brothers managing director and co-head of MBS and ABS finance. "If there is a core competency of our fixed-income division [mortgages] is clearly where we're going to put our resources and expertise, so as new forms of business evolve, we are evolving forms of business that won't come to fruition for weeks or months into the future, which we are working on right now."
Harding says that Lehman continues to incrementally expand its mortgage concentration and get better, investing financially and with human resources to keep its presence at the very forefront of the curve.
"We are going to be involved in anything and everything that is of value in the mortgage business as a whole, and that can be from subprime to prime to reverse mortgages to things that are done in asset-backed securities, such as high loan-to-value or home improvement time shares," Harding noted. "For anything that resembles a mortgage, we have been and are involved in it on a program basis. Our competitors are just not as focused as we are."
Reverse Mortgages Securitizations: Fits And Starts
Though Lehman had been trying to get its reverse mortgage securitization efforts off the ground for almost eight years, it finally succeeded this previous year with its landmark Financial Freedom Senior Funding Corp. securitization (MBSL 8/30/99). Though the reverse mortgage market began with fits and starts, Lehman constantly researched it and developed a strategy to become a leader in this newly emerging asset class.
"The demographics are certainly in our favor, and the deal was very successful," Harding said. "The positive trend should be more and more necessitation for a product of this nature for the elderly. As you have more of a need, more of a demand, it spurs more innovation of different types of mortgage product."
The future of the reverse mortgage securitization business largely depends on the regulatory issues surrounding it, Harding notes. Because this type of product deals with the elderly, regulators seem to want to have their cake and eat it too: They are tough on loan originators who don't originate to minorities and to the elderly, but when they do, originators are accused of charging them too much.
"The first time an elderly person says they got ripped off, this could all of a sudden put new cramps in the lending practices that are out there," Harding said. "This is still an emerging asset class, and we have no illusions that we're the only ones that will ever do a reverse mortgage deal. However, we believe we have an incredible head start, and given our track record, we should be one of the leaders in this sub-sector as well."
Because of this aforementioned stigma on the reverse mortgage market, it may not expand quite as quickly as Lehman had hoped. However, Harding expects a slowly increasing broadening for the marketability of such deals.
Lehman Tapping The Web?
Lehman's research and development team for MBS are always at the cutting edge of where the market is headed, and the Web seems to be the next logical step.
"Once a particular area gets saturated, the only way to increase market share is to create something new," Harding said, pointing to the fact that Lehman and other investment banks are continually looking for new avenues in the MBS arena. "Access to new customers through internet sources could be of interest."
Though Harding is not a person "that thinks that just because there's a dot-com' you've created a new element," he does assert that the Internet could "spur another way of reaching customers which would allow for more creative lending to be done."