Report Shows Just How Much The Private-Label RMBS Market Has Shrunk

A recent report from Moody’s shows how U.S. private-label securitization ebbs and flows with the amount of debt outstanding.

The report suggests that when the country’s borrowing needs rise, securitization provides the required incremental funding, but when borrowing needs decline, securitization is among the first sources of financing to contract.

“The relationship between the contribution of private-label securitization and the amount of debt outstanding in the U.S. was clearly evident between the mid-1980s and the financial crisis,” says Joseph Snailer, senior vice president for Moody’s. “The amount of debt outstanding grew significantly in the 20 years or so before the crisis, and at the same time, private-label securitization became more important as a source of funding for consumers and businesses.”

The report analyzes the relationship between securitization and debt outstanding by asset class. It finds that with credit cards, residential mortgages and leveraged loans, the degree of private-label securitization is similar to that of outstanding debt. However, in the auto loan and commercial mortgage sectors, private-label securitization has expanded more quickly than debt outstanding.

Although outstanding mortgage and credit card debt is increasing, as consumers continue to de-lever, it remains significantly below crisis-era highs and behind long-term trends, the report states. Likewise, private-label residential mortgage-backed securities (RMBS) and credit card securities still fund a smaller share of the market than before the crisis and are also behind long-term trends.

Private-label RMBS funded just 9% ($883 billion) of the $10 trillion of residential mortgages outstanding at year-end 2015 – its lowest percentage since 1996, the report shows.

That’s mainly because government-sponsored enterprises Fannie Mae and Freddie Mac funded through securitization a significantly larger share of residential mortgages in 2015 (58%, or $5.8 trillion) compared with 2007 (39%) as a result of the private-label RMBS market’s decline.

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