While the Spanish RMBS market is still relatively small, it remains an attractive product for investors and has continued to gain popularity over the past few years. In fact, a report issued by Morgan Stanley last week stated that, although the Spanish RMBS market is small, it is an area that investors should continue to explore.

Last year, the Spanish RMBS market reached $4.8 billion in issuance and has remained steady over the last five years. In the past, sources have told ASR that Spanish RMBS deals might be just what the doctor ordered when it comes to diversifying an international RMBS portfolio, especially in troubled times (see ASR 10/15/01 p.1). At 31%, the Spanish mortgage debt-to-GDP ratio is lower than the EU average, - primarily as a result of historical difficulties relating to long-term lending, which has contributed to the slow development of the market.

However, according to the Morgan Stanley report, "It is an appealing product to investors due to historically low arrears and default rates, low loan to value ratios (LTVs), third-party guarantees and fewer transactions incorporating flexible mortgages than other markets." Furthermore, the report noted that Morgan Stanley would continue to monitor the performance of transactions with flexible mortgage portfolios. "The deals that have additional credit enhancement over standard mortgage transactions are performing well to date, but are priced up to five or six basis points wider than a traditional Spanish mortgage transaction at the AAA' level."

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