US issuers in residential mortgage bond rush An elite group of private issuers are stepping up sales of bonds backed by US residential mortgages, without waiting for new regulations governing the housing and securitisation markets. While the market for residential mortgage-backed securities (RMBS) is dominated by US government agencies, which guarantee most American home loans, a small cadre of financial firms have been buying and securitising mortgages that do not qualify for that federal support. Two more additional deals have been offered to investors this week - from Redwood Trust and Bayview Opportunity Fund - taking the total number to six for the year to date. In all, $2.4bn of bonds have been sold since the start of 2013, compared with $6bn for the whole of 2012, according to Standard & Poor's. Analysts expect more issuers to join the market this year, and are beginning to question if their early forecasts of $12bn-$15bn for the full year are too low. "Even without regulatory changes, we are seeing the non-agency market growing of its own accord," said Brian Lancaster, strategist at Royal Bank of Scotland. Bond spreads are tight and yields are low, making it compelling for issuers, and there is stabilisation in many parts of the US housing market, which means that rating agencies are comfortable in rating the deals. Private RMBS sales remain tiny, however, compared with the size they reached during the housing bubble, when securities were made out of subprime mortgages handed to borrowers with poor credit scores. Issuance topped $700bn in the peak years of 2005 and 2006. Today's private RMBS are made largely from mortgages too large to qualify for a guarantee from government agencies Fannie Mae or Freddie Mac. Size limits range from $417,000 to $625,000, depending on location. Redwood Trust's latest deal, its third of the year, is a $600m portfolio of loans to borrowers with "high credit scores, significant liquid cash reserves, and sizeable equity in their properties," according to Moody's, which rates the top tranche of bonds at triple A. Credit Suisse and Stanwich Mortgage have also sold bonds this year, and at least one lender that currently sells mortgages to Redwood is said to be considering securitising its loans directly. Sandeep Bordia, head of residential and commercial credit strategy at Barclays, said issuers have honed their processes for sourcing and packaging mortgages, so they can now issue bonds with increasing regularity. It is still attractive for banks to keep most mortgages on their own books, since banks can currently borrow at low interest rates, he said. But at the margin we are seeing more private-label securities and the trend will increase as more issuers come into the market. Considerable uncertainty remains over the shape of the securitisation market in the future. Regulators are setting rules that will divide mortgages into different types, some of which will give borrowers more rights than others, and some of which will have to be kept, in part, on a lender's own books instead of securitised. The future of Fannie Mae and Freddie Mac, nationalised during the credit crisis, also remains undecided.