Smaller banks are jumping in to nab the remaining mortgage-backed securities market share left behind as Bank of America (BAC) exits the secondary residential mortgage market space, according to Paul Miller the () with FBR Capital Markets.
Miller attributes BofA's rather anemic MBS issuance in the recent first quarter to ongoing struggles with legacy portfolios in private-label securities and representation and warranties issues.
Miller said new data from Inside Mortgage Finance confirms what analysts have been projecting for months — that big players, including BofA, are bowing out of MBS issuance, leaving room for banks that are not overly exposed in the segment and able to participate.
The financial publication released data showing that Bank of America's market share in MBS issuance fell to 2% in the first quarter of 2012, down from 5% in the fourth quarter of 2011 and 19% from a year ago.
And while BofA is getting out of the segment, Miller says smaller players "who don't have legacy portfolios" are picking up the slack.
It even estimates Fifth Third's share of MBS issuance volume rose 65% year-over-year, while Flagstar's share jumped 85%.
U.S. Bank's share, meanwhile, jumped 15% year-over-year and BB&T's share grew 26% over last year.
Miller views the trend as one that will carry on.
"I think it's a long-term shift because these bigger banks cannot trust their underwriting," Miller said.
Still, Miller said it doesn't mean in a few years the big banks won't dip their toes back in, but he sees smaller players dominating the market today.