Issuance of the securities has doubled since last year Subprime mortgage bond issuance has been almost nonexistent in the 10 years since those securities brought the world economy to its knees, but data from Inside Mortgage Finance show that the risky bundled loans are making a comeback in a big way.
Financial Times reports that subprime mortgage bond issuance doubled in the first quarter of 2018 compared to a year ago, going from $666 million to $1.3 billion. Furthermore, it quotes a financial analyst predicting that issuance for the year will hit $10 billion, which is more than double the $4.1 billion issued last year. For context, the value of American subprime mortgages was estimated at $1.3 trillion in March 2007.
Since the financial crisis, mortgage-backed securities have been almost entirely issued by government-sponsored mortgage facilitators Freddie Mac, Fannie Mae, and Ginny Mae. And since the financial collapse, those organizations have refused to insure subprime mortgages. The Dodd-Frank regulation passed after the collapse put tight rules around subprime lending that for awhile effectively killed the practice. But over the last couple years, specialty firms have jumped back into the subprime market, rebranding it as ?noprime.? Investors hungry for bonds with higher yields have generated enough demand for those loans to be secularized, just as they were in the run-up to the financial collapse. The result is a rapidly expanding subprime mortgage market.
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