Private-label RMBS issuance could peak this year: KBRA

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Private-label residential mortgage-backed securitization is approaching a post-crisis peak, according to Kroll Bond Rating Agency.

"As we enter 2019, the U.S. may possibly enter its longest economic expansion ever, should a decline in GDP not occur by July 2019," KBRA analysts Jack Kahan, Sharif Mahdavian, Gary Narvaez and Patrick Gervais said in a Nov. 30 report.

"This stokes our optimism that we'll see another robust issuance year in 2019, but there are also headwinds, including higher interest rates, home price moderation, and in the last few weeks, widening spreads. Given the potential downside risks, we aren't forecasting issuance growth in 2019, but believe issuance will be comparable to 2018 levels."

However, there is a possibility that government-sponsored enterprise reform could increase privatization in the mortgage market, which could give issuance a boost next year. Previously, other researchers have suggested private-label RMBS issuance could continue to climb next year.

"A new FHFA director in early 2019 and associated changes can be expected to limit GSE activities," the KBRA analysts noted.

Post-crisis RMBS issuance during 2018 will likely be up 63% when the fourth quarter totals are in, according to KBRA estimates. KBRA includes the GSEs' credit risk transfer deals in its totals for post-crisis RMBS volumes.

A strong driver of the issuance in the RMBS market continues to be the prime sector, which nearly doubled in volume compared to 2017. But nonprime issuance in 2018 was strong as well, and is expected to more than triple what it was the previous year.

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RMBS Private-label Qualified Mortgages Subprime lending GSE reform Credit risk transfers Kroll Bond Rating Agency