The RMBS market reported another paltry quarter, wrapping up a dismal first half for new issuance despite both local and Federal loss-mitigation initiatives.
Total volume clocked in at $117.3 billion in 209 deals for 1H08 compared with $622 billion in 742 deals for 1H07, according to Thomson Financial league tables.
Banc of America Securities took the top spot among RMBS managers, with 25 deals totaling $20.2 billion in issuance, while JPMorgan Securities placed second with the same number of deals but with a smaller total of $16.4 billion. Both banks posted drastic declines from 1H07, when Banc of America put out $42.3 billion in 60 deals and JPMorgan sold a whopping $113.8 billion in 136 deals, claiming first place.
Credit Suisse remained in third place with $14.6 billion in 26 deals, although dropping from $44.2 billion in 74 deals, one year prior. Barclays Capital and Lehman Brothers rounded out the top five, issuing $10.2 billion in 15 deals and $9.6 billion in 19 deals, respectively.
Despite Federal government initiatives over the past year to help troubled borrowers - which included raising the GSE limits, the HOPE NOW Alliance, a fast-track loan modification plan proposed by Secretary of the Treasury Henry Paulson and the new proposal to permit the Federal Housing Administration to provide up to $300 billion to help borrowers refinance - issuance is making a slow recovery.
This decline is abetted by the lack of investor interest as market participants expect more downside in the sector, particularly on the non-agency side.
Many investors are refraining from jumping into recently issued non-agency MBS, even at the top of the capital structure, fearing bond losses or ratings downgrades as risky mortgages collide with falling home prices, Barclays Capital analysts said in a recent report.
Another reason behind the lack of demand for new RMBS is the current interest in pre-2005 loans. Many of these loans, specifically 2003 and 2004 vintages, were made during the refinancing wave, which means they were not used for new purchases and they have stronger borrower attributes. At the same time, there is more equity in these homes, Barclays said. "Investors are widely attuned to this and therefore shun recently issued MBS while chasing seasoned ones," the bank said.
Prices on non-agency MBS are now back to March lows reached at the time of the Bear Stearns meltdown, said UBS analysts in a report last week.
Furthermore, The Mortgage Insurance Companies of America reported that 67,967 borrowers were at least 60 days behind on payments. These numbers were cited in the UBS report.
Banks are also exiting certain product lines altogether in hopes of maintaining capital. Most recently, Wachovia said it will no longer issue option adjustable-rate mortgages, which were the primary business of its Golden West Financial Corp. subsidiary (see whispers).
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