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Investments
Surging revival

Nonagency RMBS kicks some life back into market

Challenges remain too daunting to overcome August slowdown

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While nonagency residential mortgage-backed securities are showing signs of new life this year, the enterprises continue to totally dominate the securitization market.

Nonetheless, private-label RMBS issuance totaled $480.7 billion in the first quarter of 2013, up from $402.2 billion, or 15.9%, from the same time period a year ago, according to research from accounting firm Deloitte. However, that is at a standstill during the traditional August slowdown.

RMBS issuance is on pace to exceed $1.9 trillion for 2013, an increase of $200 billion from 2012.

However, private-label RMBS issuers have been largely absent from the market due to ongoing regulatory concerns and the inability to compete with the mortgage giant enterprises.

Regarding mortgages, Fannie Mae, Freddie Mac and Ginnie Mae still back 90% of total originations, according to the Royal Bank of Scotland (RBS).

If the mortgage finance system wants any chance of luring private issuers back into the market two critical changes must happen, including rates need to rise enough to make private-label lending more attractive and government-sponsored enterprise loan limits need to come down in order for private label lending to pick up, explained RBS Marketing & International Banking analyst Jeana Curro.

"Currently execution is still very good for both borrowers and lenders to make loans that fit into the GSE box," Curro explained.  

She continued, "Finally, the securitization market is awaiting the final rule on the Qualified Residential Mortgage standard. This uncertainty needs to be cleared in order for securitization markets to revive."

Regardless of the multiple barriers impacting the sector, nonagency issuance is coming back to life.

For instance, 12 nonagency issuances, which totaled $5.5 billion, were completed through April, Deloitte noted.

Going forward, issuance is expected to increase from $6 billion in 2012 to $20 billion this year as investors begin to dip their feet back into the private-label universe. 

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