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CAPITAL MARKETS

Securitization: RMBS gears up for windfall

A deep and sustainable private-label RMBS market has always eluded the US thanks to the insuperable competitive advantage enjoyed by the GSEs; that could change if plans to remove these guarantees for higher-risk mortgages go ahead.

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Residential mortgages have always dominated securitization. In 2006, there was an astonishing $1.28 trillion of RMBS issuance in the US, a figure that fell to a post-crash low in 2012 of around $30 billion.

Volumes have picked up since then, and RMBS-related issuance is forecast to reach $100 billion in 2019, up from $86 billion in 2018, according to Standard & Poor’s. However, the market is still a shadow of its former self.

The banks still dominate mortgage lending, but not nearly to the extent that they used to. Most are quick to point out that their online disruptors have yet to perform through a cycle.

“The mortgage market is archaic,” says Jay Hallik, global head of micro at Morgan Stanley, a role that includes credit and securitized products. “If there is a way to improve it using technology, then that is good. But the technology has not been tested yet.”

Jay Hallik,
Morgan Stanley

Wells Fargo was the largest mortgage originator in the US in 2018 with $177 billion of loans written, followed by Chase with $86.9