In a report released last week, Moody's Investors Service predicted that private-label RMBS total issuance would dip this year by about 10%-20% compared to last year's volume.
The rating agency said that issuance in 2002 would reach roughly $125 billion in the public and 144A markets. Moody's added that issuance in the first half of this year would surpass issuance in the second half.
2002's expected dip in volume further highlights last year's record issuance levels. Issuance in 2001 reached $144 billion, which is twice 2000's numbers. The considerable increase was caused by two major factors: a decline in interest rates and a strong housing market.
Despite the predicted drop, Moody's said, however, that portfolio performance this year is expected to remain good with jumbo pools exhibiting low losses in most economic scenarios.
There will also be a continuation of trends seen in 2000. This includes further automating of the underwriting and appraisal processes by originators as well as increased consolidation in the industry. Both of these factors will help reduce costs for consumers.
Warren Kornfeld, a vice president at Moody's residential mortgage group, said that so far the streamlining processes that were used have been "credit neutral." However some caution is needed to make sure that further streamlining would not cause increased credit risk and volatility in mortgage pools.
Analysts also said that credit enhancement levels will continue to be based on individual pool characteristics. The report revealed that in 2001 jumbo mortgage triple-A credit enhancement levels declined primarily due to improved pool characteristics throughout the year.
FICO scores, which are a measure of loss frequency, went up to the 730-740 range for most of the pools of frequent jumbo issuers. Aside from this, the robust housing market caused loan-to-value (LTV) ratios, which measure loss severity, to decrease.