--Amelia Granger
Investors say they want to buy new issue residential mortgage-backed securities and banks are building up their RMBS desks to cater to that demand. But rating agency standards that call for high credit enhancement levels and a lack of new private label mortgages to securitize are still posing significant obstacles to the market’s return, according to market officials.
Deutsche Bank recently hired Noel Doromal (see story page TK) to head up its RMBS structuring desk, and UBS (TS, 7/30) and Credit Suisse have been actively rebuilding their desks.
One banker at a firm that recently beefed up its RMBS desk said he was confident the U.S. RMBS market was already in the process of returning. “I know we’ll see more deals this year,” he said. “[The market] will come back. It needs to come back.” He pointed to spreads tightening and buyer malaise in other sectors leading investors back to RMBS.
Paul Norris, head of structured products at Dwight Asset Management, agreed that investors want to move back into new issue RMBS. “It really hinges upon the origination,” Norris said. He is looking forward to new RMBS deals coming out over the next year. “The important thing is good underlying collateral. Banks are originating that collateral now and compiling it on their balance sheets, and I think they’ll securitize it.”
One RMBS trader speaking with TS took a much less optimistic outlook on the market’s return. “It’s a question of rating agencies requiring exorbitant credit enhancement levels,” he said. “You need to get to a point where you can place a meaningful number of subordinated bonds. I don’t think you’ll see meaningful new issuance for the rest of 2010 or the first half of 2011.” After that point, he said, it was too far off to predict where....