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The US securitization market

US Securitization agencies

  • 22nd August, 2002 : Volume of issuance for First half of 2002 reported here.
  • 29th November, 2001 : Our news report here discusses market activity in the second half of 2001.
  • 1st February, 2000 : Mortgage securitization data for 1999 was added to the News page. Click here to visit.

 

The United States of America is the largest securitisation market in the World. In terms of depth, it is the only market in the World where securitisation market draws participation from both institutional as well as individual investors. In terms of width, the US market has far more applications of securitisation than any other market.

Approximately 75%, or more, of the global volumes in securitisation are originated from the USA. This by itself indicates the tremendous significance of USA in global securitisation market. Not only this, even securitisation issues originating from other countries, including Japan, Europe and some of the emerging markets, draw investors from the USA.

In Mid-1998, the total volume of securitisation in USA was estimated at at $2.5 trillion with the bulk of it ($1.9 trillion) dominated by the inbreed, government-sponsored cousins known as Ginnie Mae, Fannie Mae, and Freddie Mac, which support housing finance and account for almost $9 out of every $10 in the MBS market.  The other major components of the ABS market include commercial mortgages ($200 billion), credit-card and home-equity loans ($220 billion), and automobile loans ($75 billion).  Recently, the subprime, home-equity segment of the ABS market has been the fastest growing and the riskiest.

Overview of the MBS market

It is customary in the USA to classify securitisation markets into mortgage-backed and asset-backed (that is, other than mortgages) market.

MBS issuance in 1998 broke all-time record. The issurance in 1998 was $726.9 billion which was almost double of the issuance volume for 1997 [$368.0 billion ]. The previous record volume was $568.1 billion issued in 1993. The two factors responsible for this spurt are said to be generally positive economic climate, and low rates of interest prevailing round the year.

With this, the amount of outstanding mortgage-backed securities exceeded USD 2 trillion, up from the approximate USD 1.8 trillion the previous year.

The MBS market is still dominated by the US agencies:

Fannie Mae accounted for the bulk of outstanding supply, with outstanding MBS debt totaling $834.5 billion and accounting for 41.3% of the total at the end of last year.

Freddie Mac ranked second, with outstanding MBS debt accounting for $646.5 billion of the total supply at year-end 1998.

Ginnie Mae debt accounted for an estimated $538.0 billion in supply at the end of 1998. GNMA's volumes have been almost stagnant as compared to the previous year.

The most noteworthy feature is the sharp increase in trading in mortgage-backed securities. Average daily volumes over 1998 were recorded at USD 70.9 billion, which is about 50% up from the levels of the previous year.

Overview of the ABS market

New issues of asset-backed securities totaled USD 197.6 billion, up by 7.1% over the previous year.

The chief feature of 1998 issuance was the buoyant activity in home equity loan issuance. Home equity loans took 41.9% of all issuance in 1998, representing $82.8 billion in issuance. Volume in the auto loan and manufactured housing sectors totaled $35.1 billion and $11.4 billion, respectively, while ABS collateralized by equipment leases totaled $9.2 billion.

The outstanding volume of ABS market in USA as at end 1998 is estimated at about USD 600 billion.

ABS market data

The following data about ABS issuance in the USA has been taken from

 

Table 1 U.S. Annual Issuance of ABS by Collateral, 1985-1999, (Mil.$)

 

 

 

 

 

 

 

 

 

Total

Auto

Credit cards

Manufactured housing

Equipment leasing

Student loans

Others

1985

1,135

797

338

1986

10,041

9,661

380

1987

9,855

6,522

2,410

184

739

1988

16,079

5,897

7,420

848

64

1,851

1989

21,785

7,823

11,326

1,970

666

1990

37,187

12,623

22,466

1,048

118

932

1991

40,299

15,046

20,833

1,316

385

2,720

1992

45,156

19,771

15,762

2,661

1,295

5,668

1993

54,994

25,268

19,597

2,459

3,668

597

3,406

1994

64,727

13,204

31,943

4,342

2,755

2,352

10,132

1995

90,302

23,471

46,975

5,739

2,657

3,345

8,116

1996

131,890

39,220

54,850

8,060

9,340

11,000

9,420

1997

150,100

45,680

47,610

9,310

7,760

16,970

22,770

1998

149,000

45,890

46,480

14,870

9,570

15,760

16,430

1999

185,787

73,147

50,427

21,667

11,253

12,267

17,027

Source: Dr. Joseph Hu (Standard and Poor's) article titled US ABS Credit Ratings show Solid Performance