US Residential Mortgage-Backed Securities Market Coming Back
| Date Published |
6/26/2013 |
| Author |
Marja Hoek-Smit |
| Theme |
|
| Country |
United States |
US Residential Mortgage-Backed Securities Market Coming Back
June 2013
According to a recent report prepared by Mark Zandi, Chief
Economist of Moody Analytics, the market for private residential mortgage-backed
securities (RMBS) is slowly resurrecting after a 5-year hiatus. The collapse of
the RMBS market was at the heart of the financial crisis. Its revival is
essential to provide the mortgage credit necessary to stimulate the housing
sector. Several small private RMBS deals, backed by high quality mortgage
loans, have been concluded recently and more are planned in coming months.
Signs for a revival of the private RMBS market are primarily
attributable to
- A rapidly
improving housing market and better mortgage credit conditions – House
prices are rising across markets. Additionally, there is a dramatic decline in
the share of home sales involving foreclosures or short sales.
- Investor
interest is strengthening – Stock prices have surged for companies that
have anything to do with housing and mortgages. Record low interests have left
investors hungry for yield, turning to the private RMBS market.
- Reduced
involvement by the government in the mortgage market – FHA, Fannie Mae and
Freddie Mac have all aggressively acted to reduce their roles in the mortgage market
by tightening underwriting standards, raising insurance premiums and increasing
the cost of borrowing.
- Bloated
bank balance sheets – There are several incentives for banks to securitize
the loans and not to hold them on their balance sheets. Some of the nation’s
largest banks now originate and service the bulk of mortgage loans and have
kept a sizable number of these loans on their balance sheets. Besides concerns
for put-back risk with Fannie and Freddie and rescission risk with private
mortgage insurance companies, the new Basel III capital standards for mortgage
businesses will make it expensive for banks to retain the value of servicing
mortgage loans on their books.
- Regulatory
clarification – The Federal Reserve has provided a definition for Qualifying
Residential Mortgage which could help jump-start private RMBS issuance.
Full Report here.
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