An estimated $476.6 billion in mortgage loans were bundled up and sold as securities to Wall Street investors during the third quarter, down 23 percent from the previous quarter, according to a report by the Securities Industry and Financial Markets Association.
Issuance of mortgage-related securities by “private-label” financers of mortgages and government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae fell during the quarter on housing sector weakness and subprime mortgage market deterioration, the report said.
“Global demand and employment and income gains are compensating for some of the difficulties in the housing sector, but fragile credit market conditions will persist, affecting issuance and demand into 2008,” said SIFMA’s senior managing director for research and public policy, Michael Decker, in a press release.
Issuance of mortgage-related securities has fallen in part because of the poor performance of many securities issued last year, and also because of a slowdown in housing sales.
The 2006 vintage of mortgage-related securities “looks to be one of the weakest ever,” the SIFMA report said, noting that Standard & Poor’s downgraded $16 billion in residential mortgage-backed securities (MBS) in the third quarter, and $20.3 billion so far this year. Losses in the subprime MBS market could hit $150 billion, or 12 percent of the $1.2 trillion market, SIFMA said, citing a recent Deutsche Bank report.
Subprime MBS issues fell 65 percent from the previous quarter, to $26.2 billion, the SIFMA report said, citing Inside Mortgage Finance.
The GSEs issued $193 billion in collateralized mortgage obligations (CMOs) during the third quarter, a 21.3 percent drop from a year ago, SIFMA said. For the year-to-date, agency mortgage-backed pass-throughs totaled $849 billion, up 24.8 percent from the $680.2 billion issued in the first three quarters of 2006.
Total non-agency MBS issuance, including jumbo and higher-quality residential and commercial mortgage-backed securities (CMBS), totaled $603.4 billion in the first nine months. Non-agency residential MBS volume totaled $140.7 billion, up from $115.4 billion in the second quarter but down slightly from the $147.2 billion in the third quarter a year ago
Mortgage asset-backed securities (ABS) — including subprime mortgages and nonjumbo transactions comprising first-lien mortgage loans with weighted average FICO credit scores of less than 674 — totaled $85.7 billion for the first nine months of the year, down 6.7 percent for the same period a year ago. At just $4.3 billion, third-quarter ABS issuance was a fraction of the $40 billion issued in the same quarter a year ago and $35.6 billion in the second quarter of 2007.
