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Barclays: Non-Agency RMBS Market to Make a Small Comeback

The stage is set for the private residential mortgage-backed securities (RMBS) market to make a comeback this year, ""Barclays"":http://group.barclays.com/home says in a new research report.


The firm forecast new non-agency RMBS issuance at $12 to $15 billion at the start of the year, and its latest research shows the market is on track to hit that mark.

""After a very cautious start in 2011 and 2012, new issuance picked up in the first few months of 2013, with 13 deals issued so far for a total of [about $6 billion] across four issuers,"" Barclays reported. ""If current execution levels continue in the private market, we estimate that there could be another [$6 to $9 billion] of issuance in the rest of the year, comprising 12-15 deals from 4-6 issuers.""

Contributing to that forecast are a few factors: First, Barclays notes, the capital costs of holding loans in portfolio will increase for many banks under Basel III, making securitization a more attractive proposition. Second, further hikes in guarantee fees (g-fees)--such as those mandated by the Federal Housing Finance Agency (FHFA)--could make for a more competitive private-label market.

On the other hand, with FHFA pushing Fannie Mae and Freddie Mac to shed credit risk, the private securities market could lose its edge.

""The main reason why non-agencies are competitive in the cleaner collateral is that the Gfee is higher than what the private market charges. The market efficiency of the GSE credit-shedding process across the buckets could leave the non-agency market at a slight disadvantage,"" the firm said. ""This is because the non-agency market will still lag on the funding front, even if the credit cost equalizes.

""However, the Gfee add-ons imposed by Congress (10 [basis points] until 2022) and potentially by the FHFA could equalized these differences.""

Altogether, Barclays says g-fees will have to rise ""at the very least"" by 10-15 basis points--or non-agency execution will have to improve by that much--in order for the private market to make any further progress in terms of market share.


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