Standard & Poor’s has cut its forecast for the issuance of non-agency mortgage-backed securities this year by a steep 40%.

The agency now expects $15 billion in volume, from its previous projection of $25 billion. Deals backed by prime jumbo loans are forecast to total $7.5 billion, or half the total.

The catalyst for the downward revision is the hearty portfolio appetite for jumbo whole loans. This has reduced interest interested rates on that product to levels to close to those offered on agency loans. This, in S&P’s view, reduces the economic benefits of securitizing jumbo loans.

Issuance of residential mortgage backeds has reached $3.4 billion so far this year, with prime jumbo-backed bonds accounting for $1.6 billion against the $13 billion for this segment during all of 2013. 

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