Mortgage Securities Volume Declines in First Quarter

The issuing of U.S. mortgage securities fell in the first quarter of 2007 from the same period last year, Thomson Financial reported Friday.

Stress in the subprime (bad credit mortgage) market delayed and prevented some issuance, but its overall impact was moderate.

U.S. mortgage-backed securities (MBS) issuance totaled $247.7 billion in the first quarter of 2007, down from $261.4 billion in the same period a year earlier, the financial data firm said.

“Subprime lending is still a narrow enough sector of the market, and the components more subject to default are a still narrower component of that,” said Richard Peterson at Thomson Financial in New York.

U.S. mortgage-backed securities issued by Fannie Mae and Freddie Mac have so far been unaffected by the delinquencies in the bad credit home loan market, which caters to borrowers with poor credit histories.

Rising defaults on subprime loans have taken a toll on bonds backed by poor credit, but Fannie Mae and Freddie Mac’s triple-A rated $3.5 trillion “agency” MBS market is seen as safe.

Securities backed by subprime mortgages are typically carved into tranches of varying degrees of risk, and so far the hardest hit by the surge in defaults has been the lowest rated.

That’s in contrast to Alt-A mortgage securities, which have been hit less severely.

The index that tracks subprime mortgage asset-backed securities has been slumping since late last year, and while the index has bottomed out in recent weeks, it is substantially below where it started the year.

Fannie Mae and Freddie Mac mortgage loans have delinquencies that are low and their loan-to-value ratios are low, analysts say.

“Over the last few weeks, issuance to some degree slowed down because of what’s going on in subprime,” said Alec Crawford, head of MBS strategy at RBS Greenwich Capital in Greenwich, Conn.

“Basically people took their eye off the issuance and look at what’s going on in ABX, subprime and credit in general. Once the end of the quarter is over, which is year-end for Japan as well, we are going to see more focus back on the new issue markets,” he said.

JPMorgan Chase & Co. was the top underwriting source of mortgage-backed securities for the first three months of the year, Thomson Financial said.

Lehman Brothers ranked second among U.S. MBS underwriters in that quarter, with a 10.0 percent market share overall.

Washington Mutual was third, with a 7.6 percent share. The mortgage lender underwrote 15 issues worth $18.9 billion.

According to Thomson, the company tracks mortgage bonds backed by whole commercial and residential home loans as well as mortgage securities initially packaged by Fannie Mae, Freddie Mac and Ginnie Mae.

SOURCE: Reuters