Jumbo RMBS Issuance May Drop In 2002

January 29, 2002

New York, January 28, 2002 -- Jumbo residential mortgage-backed securities (RMBS) issuance faces a decline of between 10% and 20% in 2002 from last year's issuance of $152 billion, said Moody's Investors Service in a new report.

"Total issuance in the jumbo and Alt A loan sector of RMBS should be approximately $130 billion, based on a survey of major issuers, with first half issuance outpacing the second half," say Moody's Senior Vice President Bruce Fabrikant and Vice President-Senior Analyst Warren Kornfeld, co-authors of the report.

Turning to last year's record volume of issuance, which more than doubled 2000's volume of $66 billion, Fabrikant said the rise "was attributable to a decline in interest rates as well as a strong housing market. The decline in interest rates spurred refinancing activity, while the strong housing market resulted in a near record level of house sales. Loan refinancings jumped to an estimated 50% of total originations from less than 25% in 2000."

Kornfeld remarked that, "in 2001, jumbo mortgage pool characteristics improved and were the primary factor in lower Aaa credit enhancement levels. The weighted average FICO score, a measure of borrower quality, increased on many pools of frequent jumbo issuers to the 730-740 range. The combined loan-to-value ratio, a factor in loss severity, decreased because of the strong housing market."

Commenting on structure, Fabrikant stated that, "another trend in 2001 was structuring Alt-A loan pools, and to a limited extent jumbo loan pools, with lender-paid mortgage insurance. Lender-paid mortgage insurance refers to a pool insurance policy whose premiums are paid by a party other than the borrower and is in addition to borrower paid mortgage insurance. Lender-paid mortgage insurance reduces loss severity."

The industry continued its consolidation in 2001, as Washington Mutual continued to acquire mortgage companies, buying Fleet Mortgage Corporation and Dime Bancorp. This follows the acquisition of the residential mortgage operation from PNC Financial Services Group in the latter part of 2000.

Kornfeld added that "origination practices continued to be modified by streamlining the approval process for select borrowers. To meet increased demand, decrease costs, and to provide better customer service, originators relied more on automated and streamlined operational processes, such as automated underwriting, streamlined documentation refinancing programs, and electronic and automated appraisals. We feel that the streamlined processes implemented to date are generally credit neutral developments which improve operating efficiencies for the originators."

The report is titled "2001 Review and 2002 Outlook: Private Label Residential MBS--Issuance Soars to New Heights; Volumes Projected to Dip."

Source: Moody's

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