DBRS: The future is bright for jumbo mortgage bonds

Number of issuers growing; positive trends emerging

Despite a drop in the number of prime jumbo residential mortgage-backed securitizations from 2013 to 2014, several trends are beginning to emerge that show the future of jumbo mortgage bonds is strong, DBRS said in a new report.

According to DBRS analysts Quincy Tang and Yuan Li, there have been 83 prime jumbo securitizations issued since 2010, totaling approximately 39,258 loans and $30.9 billion. The number of issuers has also grown, increasing to a total of 13 as of March 2015.

Additionally, DBRS noted that there were 31 total jumbo deals in 2013, 28 in 2014 and 12 in 2015 so far.  

In addition to the increase in issuers, the incredibly strong performance of jumbo mortgage bonds thus far gives DBRS confidence in the bonds moving forward.

According to DBRS’ report, jumbo loans feature low loan-to-value and debt-to-income fully documented loans made to high FICO borrowers with robust income and reserves.

Therefore, the performance of the bonds has been “impressive,” with only 11 loans having a payment status of more than 60+ days delinquent (including bankruptcy, foreclosure and real estate owned). Additionally, there have been only 0.04% losses to date on one transaction, DBRS noted.

Positive loan attributes alone do not explain the excellent performance to date of the super prime transactions, DBRS explained in the report.

“Many of the new mortgages were underwritten to an extremely conservative standard, particularly with respect to verification of documents,” DBRS’ analysts wrote. “In addition, almost all of these transactions employed third-party due diligence reviews covering credit, compliance and property valuation on 100% of the underlying pool, leaving few exceptions or deficiencies of the securitized loans.”

The DBRS’ analysts write that those factors contribute to DBRS maintaining a “relatively optimistic medium- to long-term outlook” for prime jumbo mortgage bonds.

Additionally, the analysts expect several more positive trends to develop in the future, all of which should help jumbo mortgage bond performance.

These trends include the government-sponsored enterprises reducing their footprint, more home purchases fueled by sustainable economic growth as well as more entrants and issuers returning to the securitization market, the analysts said.

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