Jumbo RMBS Issuance Dry Spell Expected to Continue in 2016

According to the January 2016 RMBS Research Report published by Morningstar Credit Ratings last week, issuance of jumbo RMBS is expected to remain slow in the new year. Recovering home prices have improved investor sentiment but not PLS market issuance for three reasons according to Morningstar: 1) issuers find it easier to sell to the agency market than to securitize; 2) agency and whole loan sales can seem more economical than PLS transactions, which can be prohibitively expensive; and 3) issuers are reluctant to loosen their credit standards and originate non-Qualified Mortgage loans.

While jumbo issuance continues to experience a dry spell, issuance of resecuritizations and transactions backed by nonperforming and reperforming loans should continue to grow in 2016. Furthermore, Morningstar predicts a growing number of these transactions will be rated, bolstering investment in RMBS by expanding the investor base and broadening market participation because of favorable capital charges. However, it is the revival of jumbo RMBS issuance that is key to bringing back the PLS market and with the outlook on jumbo grim, Morningstar expects the dearth in private label issuance to continue.

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