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Secondary tremblers.

Secondary Tremblers

The secondary market was hit by powerful external forces last year. The result was huge shifts--both up and down--in the numbers that serve as a proxy for the market's activity.

The Richter scale registered some big surges in volume--whole loan CMOs for example tripled in volume last year. On the downward slope, senior/subs tumbled by 40 percent at last year's final quarter compared with their dominant presence in passthrough deals in 1988.

Even a real quake rocked the secondary in October. San Mateo-based Bay View Federal Savings & Loan Association had its triple-A rated, commercial mortgage-backed securities placed on a watchlist by Moody's for possible downgrade. The damage to collateral from the "act of God" was deemed insignificant by Moody's and the rating was reaffirmed.

But a real fundamental shifting of the foundation of the secondary market contributed to the controlled upheaval that shook the MBS markets last year. On top of an actual quake of major proportions, a symbolic quake rocked Wall Street when a major brokerage firm, with substantial mortgage securities dealings, went under. The fall of Drexel clinched these times as uniquely risky and prone to precipitous shifts in fortune.

A quick look at some numbers tells at least part of the story. The combined, single-class MBS issuance out of GNMA, Fannie Mae and Freddie Mac rose $50 billion last year versus 1988. That was a jump of 33 percent. Ninety-eight percent of that came from Fannie Mae and Freddie Mac. So, clearly the agencies benefited from the change rumbling through the market. Some big buyers of those conventional MBS were banks. In 1989's third quarter alone, banks boosted their holdings of MBS by 20.4 percent, HUD says. Risk-based capital rules proved a major force driving securitization volume. However, two apparent losers in the MBS market last year were U.S. investment banks and the U.K. secondary market, by Moody's reckoning anyway. CMO issuance by investment banks dropped by 69 percent last year versus 1988 volume. And mortgage-backed notes posted a zero growth year in the U.K. largely due to depressed originations tied to high interest rates. Looking ahead, this year will be hard pressed to measure up.
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Title Annotation:secondary mortgage market
Author:Hewitt, Janet Reilley
Publication:Mortgage Banking
Article Type:editorial
Date:May 1, 1990
Previous Article:Economic trends.
Next Article:The MBS markets: 1989 and beyond.

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