RMBS investors slowly gain steam in marketplace

Rising home prices, declining legacy issues foster new issuance

New and refinanced mortgages continue to move through the private-label residential mortgage-backed securities pipeline, attracting investors back into the space.

The sector is attracting investors again on rising home prices and declining legacy nonagency RMBS, coupled with the desire for higher yield paper, according to Deutsche Bank (DB).

As a result, new RMBS issuance has skyrocketed for the first seven months of 2013, reaching an aggregate total of $19.7 billion upon the completion of 49 deals.

This is a significant feat, considering the entire issuance for 2012 totaled roughly $17 billion – a 132% increase, according to Fitch Ratings.

As of September, the aggregate transaction 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

However, it’s important to note that investors are hesitant to fully commit to the nonagency RMBS market, given regulatory uncertainties.

In June, American Securitization Forum executive director Tom Deutsch told members of the Senate House Finance Services Committee that investors would not return to the secondary mortgage market until concrete terms were in place, such as clear representation and warranties guidelines in the contract.

But this is unlikely to occur until the government determines the proper roles of Fannie Mae and Freddie Mac.

"With a proper understanding of the terms, a proper return on the investments could then be determined,” explained Fitch managing director and homebuilding analyst Robert Curran.

Another key issue preventing investors from quickly returning to the private securitization market is the potential for new conflict created by eminent domain proposals in local jurisdictions.

The potential use of eminent domain may present various after effects that harm investors and the entire RMBS landscape.

More importantly, the implementation of the program could negatively impact RMBS and future lending activity.

While nonagency RMBS investors slowly climb back into the market, it’s important to note the amount of new issuance is only a drop in the bucket compared to peak-level days.

To put it into perspective, the residential-bond market represented more than $2 trillion in size and private-label RMBS accounted for 56% of the total, according to Inside Mortgage Finance.

Nonetheless, the current RMBS deals are reflective of those issued during the pre-crisis days, offering good yield and credit protection — a planned goals by veteran and current issuers to lure investors back into the private-sector game. 

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