After a year when Russia declared war on the Ukraine, the Federal Reserve took its own hawkish stance on record high inflation and the mortgage industry began to contract, the securitization industry originated about $366.50 billion through December 29, a 14.2% drop from last year's production, according to data compiled for Asset Securitization Report.
The dip was widely expected across the industry. For all of last year, managers did about $427.01 billion in new securitization business, according to sample data from the ASR database.
For the Q4 2022, production was about $50.3 billion, the database suggested.
Residential mortgage-backed securities (MBS) asset class was the top producer, by both deal count and production volume, with about $127.3 billion in new business for the year, among some 200 deals. Although the RMBS sector had the best output by asset class, it was still about 16% down from 2021's production of $151.5 billion, ASR's database suggests.
The industry does not expect better from RMBS in 2023, due mostly to fundamental pressures on the home mortgage industry.
"We expect issuance volume to remain low for at least the first half of 2023, owing to the prevailing rate environment," analysts for Kroll Bond Rating Agency wrote in its 2023 Structured Finance Overview. "Rates have curbed mortgage supply and unfavorable private-label securitization spreads make GSE and balance sheet financing more attractive."
KBRA did mention one segment of the RMBS business that increased in 2022, that of non-qualified mortgages. Not even that segment can make the whole mortgage segment shine in 2023, the rating agency suggested.
"Economics are different for prime issuers, however the sector will struggle in 2023 due to high rates and volatile spreads," according to the KBRA overview.
The auto, credit card, and student loan asset classes followed, with about $120.2 billion, $31.1 billion and $6.9 billion in production, respectively.
Dipping production was the typical story for 2022, but not for credit cards, where production in that segment was about $31.1 billion for the full year 2022. It was a massive jump over the $9.3 billion in business for all of 2021, ASR data suggests. It was a standout in a period where rising interest rates and inflation could have prompted consumers to put away the cards. Instead, they kept swiping and tapping, which boosted the securitization sector.
KBRA analysts did note, however, that credit performance had weakened across the majority of consumer segments over the past year. Among credit cards, delinquencies among 30-plus day had increased 2.6% in 2022. Among accounts below 620 the 30-day plus delinquency rate increase was sharply higher, at 8.2%.
Among the securitization sectors that saw declines, student loan ABS appears to have tumbled the most. Full-year 2022 issuance was about $6.9 billion, a stark 67.9% drop from last year's total, $21.6 billion.
