Fed Survey Finds Increased Interest in RMBS

The Board of Governors of the Federal Reserve System released findings from its Senior Credit Officer Opinion Survey for March, 2014. The report found that credit officers are experiencing an increased demand for residential mortgage-backed securities (RMBS).

The survey was conducted over the past three months to collect qualitative information on changes in credit terms and conditions in securities financing and over-the-counter (OTC) derivatives markets. The survey noted, "The 22 institutions participating in the survey account for almost all of the dealer financing of dollar-denominated securities provided to nondealers and are the most active intermediaries in OTC derivatives markets."

The survey's results offered a few insights.

A third of all respondents reported an increase in resources and attention paid "to the management of concentrated exposures to central counterparties and other financial market utilities." The figure represents the lowest value since the question was added to the survey in September, 2011.

Financial leverage remained unchanged over the past three months. However, two-fifths of dealers reported a decline with respect to trading real estate investment trusts (REITs).

The survey results concluded, “With regard to securities financing, nearly one-half of dealers reported an increase in demand for funding of non-agency residential mortgage-backed securities (RMBS), and two-fifths of respondents also noted increased demand for term funding against such collateral."

Dealers found that liquidity and functioning have improved in the non-agency RMBS market.

Loan officers reported that "conditions in the cash markets for other collateral types were reported to be basically unchanged."