According to JPMorgan Chase & Co., the monthly issuance of subprime mortgage and home equity loan-backed securities stood at $2.65 billion through October 19th, marking a 94 percent decline from volume a year ago.
Since July 1st, only $12.36 billion in MBS have been issued, a whopping 60 percent decrease from the total volume achieved in the month of June alone.
Through October 19th, $213.18 billion in subprime and home equity loan MBS were sold, a dramatic decline of 53 percent from the same time last year.
Subprime and home equity MBS accounted for 44 percent of the total MBS volume through October 19th, down a sizable 64 percent from the same time last year.
Interestingly, not a single subprime or home equity loan MBS was issued during the week ended October 18th, as investors continue to treat the investments like the plague.
Mortgage-backed securities, once favored as a hot investment by hedge funds and investment banks have fallen out of vogue as rising delinquency rates and defaults have severely dampened demand.
Recently, many banks and mortgage lenders have either withdrawn from making non-conforming loans, or have reluctantly chosen to keep loans that can’t be sold to Fannie and Freddie on their books.
For deposit banks, this has been a somewhat viable option, but many smaller lenders that relied on the secondary mortgage market for profits have either ceased operations or shut down completely.
Most lenders at this point are completely focused on conforming loans, those which can be sold to government-sponsored entities Fannie Mae and Freddie Mac.
Mortgage loans that don’t fit conforming underwriting guidelines, including jumbo loans that are essentially a necessity in expensive markets in the U.S., are becoming increasingly difficult to sell, forcing banks and lenders to charge a higher mortgage rate to assume risk and keep them in-house.