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Investments

RMBS issuance soars past estimations

Prime jumbo originations help securitizations surpass $20B

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In the first seven months of this year, new issuance in residential mortgage-backed securitizations continues to gain steam, with the completion of 49 deals, reaching an aggregate total of $19.6 billion so far. It's still a drop in the bucket compared to RMBS where the government is involved.

As of Wednesday, aggregate deal size of prime jumbo deals, nonperforming loan deals, seasoned deals and servicing advance deals accounted for $9.6 billion, $2.46 billion, $3.4 billion and $3.7 billion, respectively — a 132% increase compared to the size of the whole year of 2012.

The sector continues to attract investors due to  rising home prices and declining legacy private label RMBS, coupled with the desire for higher yield paper will continue fuel the new securitization market, according to Deutsche Bank (DB).

“We expect new issuance in private RMBS securitization to maintain its momentum for the rest of the year and surpass the $20 billion deal size,” the bank wrote in a recent market research report.

The prime jumbo market is a key sector driving the RMBS volume. In fact, since the beginning of the year, prime jumbo issuance increased 2.7 times ,compared to the $3.6 billion new issuance in 2012.

Redwood Trust (RWT) — the largest issuer so far — has a total issuance of $4.9 billion, more than half of total prime jumbo issuance. Closed on January 30, the Redwood Sequoia deal SEMT 2013-7 has the largest deal size so far this year.

Moving into 2014, Deutsche Bank said it expects more prime jumbo originations, especially if the government-sponsored enterprises reduce their conforming loan limits next year, such a reduction is leaving many industry experts wondering if this is the government’s way of pulling back out of mortgage market to let private capital have a bigger role.

However, investors are weary to take a slice of private-label pie given that the majority of the deals in the sector are cushioned to resist attractive credit risk. 

Nonetheless, momentum within private-label RMBS continues to improve.

In the first quarter of 2013, government-linked RMBS issuance (Fannie Mae, Freddie Mac, Ginnie Mae) totaled $480.7 billion, up from $402.2 billion during the same time period a year ago.

According to research from accounting firm Deloitte, that RMBS issuance is on pace to exceed $1.9 trillion for 2013, an increase of $200 billion from 2012.

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