Issuance of nonagency, U.S. residential mortgage-backed securities remains moribund for the seventh consecutive year, due to several reasons, including regulatory uncertainty, new standards for servicers, and macroeconomic factors, such as interest rates and housing prices. Through July of this year, issuance, at $7.5 billion, is on track to be below the nonagency new issuance amounting to $16.91 billion for all of 2013. And market participants should be well aware that issuance is nowhere near levels seen between 2000 and 2007.

The challenges facing the private-label RMBS market can be classified under five categories: regulatory hurdles, stability of counterparties, the representation and warranties framework, exogenous variables, and technical factors. That said, the role of the federal government in reforming the government-sponsored enterprises probably will have the biggest influence on the size of the private-label RMBS market. Nonagency RMBS securities currently make up only 12.8% of the combined agency and nonagency mortgage-backed securities market. Reducing the footprint of Fannie Mae and Freddie Mac will allow for great participation in the private-label RMBS market.

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