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S&P sees revival in private label RMBS in the US market: Credit-Suisse’s RMBS issuance

 

Home > Securitization > News on Securitization > Residential Mortgage Backed Securities > Securitization in USA > S&P sees revival in private label RMBS in the US market: Credit-Suisse’s RMBS issuance

 

21st April, 2012:

The US Private label residential mortgage-backed securities ("RMBS") that had once faded away into the shadows after the housing market downturn in late 2007 is once again showing signs of revival as per the latest S&P report dated 19th April, 2012 by Sharif Mahdavian, Director. Since the downturn of the housing market, agency RMBS kept growing (Figure 1) and government sponsored entities ("GSEs") viz. Freddie Mac and Fannie Mae controlled roughly 95% of total mortgage loan originators and generated nearly 100% of RMBS issuances in the US market but private label was almost dead (). Various reports published in 2011 stated that the reintroduction of private capital to the residential mortgage sector will take time since the shift from government-to-private could hurt the availability of credit, home prices and delay the housing market recovery.Though there were several UK issuances in 2011 and some transactions from Australia, the US market was largely overpowered by agency RMBS transactions. Credit-Suisse's recently proposed issuance, rated by S&P and Fitch is the first private label RMBS since the market completely dried up in 2008.

Figure:1Figure: 2(Based on data from SIFMA site)

 

The table below summarizes the mortgage refinancing scenario pre and post crisis:

 

Pre-crisis

Post-crisis

USA

  • Agency MBS

  • Private Label RMBS

  • On-balance sheet

  • Largely agency MBS

  • Very little private label

  • RMBS

  • Some extent of covered

  • bonds

  • On balance sheet methods

Europe

  • Covered bonds

  • RMBS

  • On balance sheet

  • Covered bonds

  • RMBS

  • On balance sheet

Asia-Pacific

  • On balance sheet methods

  • RMBS

  • On balance sheet methods

  • Very little RMBS

After a long wait the evolution for revival of the private label RMBS market in the US has begun with Credit Suisse taking the lead. It is believed that there is a strong desire by policymakers and market participants to privatize housing finance and reduce the influence of Fannie and Freddie over time. Despite the continuous obstacles faced by the private-label RMBS market, Credit Suisse has made an attempt to bring a private-label residential mortgage-backed securitization, backed mainly by MetLife loans. S&P recently rated Credit Suisse, its first rating on prime U.S. RMBS collateral since 2008. It seems to be an interesting time for RMBS market in the U.S.

In this deal titled "CSFB Mortgage Securities Corp. 2012-CIM1(CSMC 2012-CIM1)" and successfully priced ($26.07 -0.12%) on 19th April, 2012, 82% of the loans are originated by MetLife Home Loans. The remainder is sourced by Quicken Loans (11%) and PHH Mortgage (7%).  Wells Fargo Bank will serve as master servicer, and U.S. Bank National Association will serve as trustee. S&P and DBRS assigned AAA to several tranches of the deal as they see revival of the private label RMBS market in the U.S through this transaction. Director Sharif Mahdavian, S&P said that "a consistent volume of securitizations of servicer advances and tax lien receivables have been seen in this sector".

Private-label RMBS, an alternative to agency mortgage securities would increase the diversification of funding sources and expand the pool of both investors and funds. It is expected that the private-label securitization market will once again make its place in housing finance as it had before the crisis when the private label RMBS issuance had exceeded a trillion dollars in annual issuance, and will return with a bang.

 [Reported by: Abhijit Nagee]

 
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