RMBS Commentary: Non-Traditional RMBS Flourishes as Prime Jumbo Fades

Abstract

The rebound in housing prices has reduced the industry’s loss expectations for residential mortgage-backed securities (RMBS) and improved investor sentiment regarding the housing market. But the positive sentiment hasn’t bolstered the private-label, or nonagency, RMBS market. There are three key reasons for this. First, the issuers find it easier to navigate the government-sponsored enterprise (GSE) market. Second, selling loans through private-label securitization remains uneconomical and unfavorable for the issuers as compared with an agency sale (selling loans to GSEs) or a whole loan sale (selling loans into the secondary market). Third, issuers remain skeptical about opening up the credit box. This dry spell in jumbo issuance hasn’t affected issuances of resecuritization, commonly known as re-REMICs, or issuances of transactions backed by nonperforming loans and reperforming loans. There is a steady flow of issuance on these transactions, but most are nonrated.