Mortgage Bond Issuance Lowest Since 2000
Sober Look | Nov 03, 2014 01:26AM ET
The availability of residential mortgage bonds in the United States has been shrinking. Private mortgage securitization markets are nonexistent since the financial crisis and the GSEs are not generating enough new supply. The reason of course is the lack of mortgage loan growth in the US. While corporate, consumer, and commercial real estate loan balances are rising, residential loans have stalled.
| Source: FRB |
On the supply side here are some reasons for the weakness in mortgage loan origination:
Scotiabank: - ... banks have been more stringent with lending standards since they were forced to buy back soured mortgages from Fannie Mae and Freddie Mac [putbacks] which led to significant losses in 2012 and 2013. Then, last year, Fannie Mae Fannie Mae stopped guaranteeing mortgages with down payments of 3% or less. Plus, in early January, the Consumer Financial Protection Bureau implemented its Ability-to-Repay and Qualified Mortgage Standards rules [Source: Source: Scotiabank
As a result of these trends, US mortgage bond market continues to shrink. The amount issued this year is on target to be the lowest since 2000.
2014 figure is based on annualized Q1-Q3 issuance (source: SIFMA)
To exacerbate the situation, over a quarter of outstanding MBS bonds has been permanently locked up on the balance sheet of the Federal Reserve. This takes a significant chunk of an already shrinking market out of private hands. And in spite of the securities purchases ending, the Fed will continue to buy MBS to compensate for prepayment amortization.
Source: Scotiabank Get The News You Want
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Written By: Sober Look
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