I always have my eye out for booming sectors in the mortgage business, and I think I’ve found one.
I’m not talking about the real estate sector. RE is booming right now, in fact I’m worried there could be a bubble as it is growing so fast. But RE booms before mortgages do (and the RE bust comes first as well).
No, I’m talking about mortgage booms. I’m talking about housing bonds, which are very often used to fund affordable mortgages.
According to our cousin newspaper The Bond Buyer, these mainly tax-exempt fundings popped by almost 20% last year, crossing the $10 billion threshold and even nearly cracking $11 billion. That’s a 19% jump from the year before ($9.2 billion). I’d call that a boom, and $11 billion a chunk of change big enough to be significant.
Who raises this money? Primarily, it is state housing finance agencies that use the money in part to buy down interest rates for first-time or low-income borrowers. (If you are thinking, how can you buy down a 3.25% 30-year mortgage, the answer is you can offer one at 1%.)
The jump was part of an overall boost in the bond sector even higher than that last year, 31%, caused by refinancings of bonds due to favorable interest rates, said The Bond Buyer.
Surprisingly though, in the housing bond sector, it wasn’t refundings driving the boom, but rather new-money financings. There were $6.8 billion in new-money issues versus $3.1 billion in refundings, with $1 billion falling into the combined category.
Average amount of the financings was slightly smaller last year than in 2011, as the number of issues declined to 328 from 337.
Both single-family and multifamily financings were robust, with $6.3 billion going to single-family and $4.7 billion for apartments.
Tax-exempts dominated the list last year, at $7.7 billion, but there was a healthy amount of taxable bonds, $2 billion, and $1 billion in minimum-tax bonds.
State agencies, the HFAs, dominated the list of issuers, at $9 billion. Local authorities were next, at $1.7 billion. City, county and state governments all did small amounts. Tribal governments did not issue any housing bonds last year.
The biggest single issue last year came at the end of the year, on Dec. 19. It was $560 million in single-family bonds for the Virginia Housing Development authority (the issuer was JPMorgan). This issue was more than twice the size of the next biggest, from the New York State Housing Finance-Mortgage Agency, for $270 million.
JPMorgan was the biggest manager last year, at $2.75 billion, well ahead of Citi at $1.6 billion and Bank of America Merrill Lynch, $1.5 billion.
CSG Advisors was the top advisor on deals, at $1.2 billion, followed by Caine Mitter and Lamont Financial.
It does seem as if there are other blossoming areas in the mortgage business. Jumbo mortgages for instance are starting to show some activity, both as JMBS and whole loans. But the housing bonds are definitely a sign of mortgage spring.