Third quarter volumes for asset-backed securitization activity totaled about $321.1 billion year to date through September 29, according to data compiled for Asset Securitization Report, amid rate hikes, layoffs in the mortgage origination market and widening spreads.
That preliminary number was just under last year's total for the third quarter, $328.6 billion, early ASR data estimates suggest.
Auto, credit card, student loan and commercial MBS asset classes produced about $205.5 billion in volume through September. Credit card ABS saw $23.9 billion in Q3 2022 production, a jump of about 24%, compared with Q3 2021, the data show.
The private-label residential mortgage-backed securities (MBS) sector saw about $115.4 billion in production, up from $107.4 billion by the end of Q3 2021. It is a remarkable performance, amid rate hikes, dipping volumes and layoffs in the mortgage lending business.
Several of the major asset classes tracked, including auto ABS, private student loan ABS and commercial MBS saw dips in production. For private student loan ABS, however, the drop was significant. Compared with business done through September 30, 2021, originations in that asset class, as tracked by ASR, were down about 44.0%. This suggests that the securitization market is growing wary of President Joseph Biden's COVID-19, pandemic-era stimulus.
Refinancing production in private student loans came under several pressure points, including lower origination volumes, pauses in payments, and the potential for loan forgiveness and higher rates, according to Theresa O'Neill, a managing director at BofA Global Research, who heads up U.S. ABS research.
"We expect volume to resume once the payment pause ends and once we get more clarity on loan forgiveness," O'Neill said.
Looking ahead, ASR data shows new business is about 62% of total securitization business for all of 2021, which totaled $511,605.00. That initial number suggests that production is off pace in relation to the calendar, but late-year surges in ABS issuance are not uncommon.
Nevertheless, higher interest rates would likely mean that origination volume would be lower than pre-pandemic levels, O'Neill said.
As for performance on notes issued to investors, O'Neill added that Banc of America expects volatility to keep spreads biased wider.
"Higher rates could lower demand for certain consumer products and loans that finance them," O'Neill said.
