TheMReport — News and strategies for the evolving mortgage marketplace.
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62 | TH E M R EP O RT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T The Return of Barclays A decade after it left, the British investment bank is returning to the U.S. Mortgage-Backed Securities Market. A decade after bonds tied to U.S. home loans con- tributed to the financial crisis, British invest- ment bank and financial services company Barclays is returning to the residential mortgage-backed securities (RMBS) market, Reuters reported. Many banks retreated from sell- ing and trading portions of loans tied to residential property, auto, or commercial real estate follow- ing the crisis. However, Reuters reported that Barclays, after as- sembling a team of more than 140 securitization bankers and traders, is preparing to re-enter the sector as investors are looking for higher returns on deals compared to traditional stocks and bonds. "This was a 500 million pound ($632.80 million) business for Barclays in terms of revenues last year, when global peers are mak- ing 1 billion pounds a year, so for us to get to 500 million pounds additional revenue over three years or 100-150 million pounds a year should be achievable at a mea- sured pace," said Stephen Dainton, Barclays' Head of Global Markets. Barclays' return is led by Scott Eichel, a securitized assets trader who experienced the troubles of the mortgage-backed securities market leading up to the 2008 crash. According to Reuters, Eichel has assembled a team of 144 bank- ers and traders who package and sell everything from commercial and residential home loans to more esoteric assets, such as me- dia and sports franchise rights. "The market has changed both outside and inside banks, both from a regulatory perspective and best practices inside firms," Eichel said. The report states that Barclays' comeback into the market does hold its risks, given that the bank paid $2 billion last year to settle a U.S. probe into its selling of mortgage- backed bonds that allegedly helped trigger the crash. In a statement at the time, Barclays CEO Jes Staley called the terms of the settlement "fair and proportionate." Barclays ranks sixth for sales of U.S. securitizations this year, which is up two places from last year. The bank is hopeful that signs of softening U.S. regulations underpin- ning the securitization industry could help consolidate and expand its market share, the report stated. A U.S. Treasury report in October 2017, prompted by an exec- utive order from President Donald Trump, supported the stance that post-crisis regulation was too strict. "The result has been to dampen the attractiveness of securitization, potentially cutting off or raising the cost of credit to thousands of corporate and retail consumers," the report said. GSEs Launch UMBS, Will it Work? After the launch of the uniform mortgage-backed security, here's what the industry is saying about the initiative. F annie Mae and Fred- die Mac marked the completion of their Single-Security Initiative with the launch of the Uni- form Mortgage-Backed Security (UMBS) in June. "UMBS is the result of close collaboration with FHFA, Freddie Mac, Common Securitization Solutions, and hundreds of hous- ing finance stakeholders, and we congratulate all involved on this achievement," said Renee Schultz, SVP, Capital Markets, Fannie Mae in a statement. "We remain focused on ensuring that all mar- ket participants continue to make a smooth transition to UMBS and maintaining a highly liquid hous- ing finance market." "The UMBS is one of the most significant accomplishments in our decade-long effort to im- prove the U.S. housing finance system," said Mark Hanson, SVP, Securitization, Freddie Mac in a statement. "Americans will benefit from the efficiency and standardization brought about by this new common security. The success of the initiative is a direct result of Freddie Mac's collabora- tion with Fannie Mae, Common Securitization Solutions, FHFA, and thousands across the U.S. housing finance industry. We are grateful for their hard work, and we join them in celebrating this achievement." However, critics of the new Security argue that it may not lower mortgage rates as in- tended. Some see the combined bond as "more than five-year process to unify a roughly $4.4 trillion pile of agency MBS cur- rently split between the two government-sponsored enter- prises." "It already was the most liquid market in the world in many respects. What are they trying to fix, exactly?" Walt Schmidt, Head of Mortgage Strategies at FTN Financial in Chicago, told Bloomberg. According to experts, the final outcome can't be said yet. "To some extent, you don't know if everything will be successful until after the fact," Jay Bacow, head of Morgan Stanley's MBS research team, told Bloomberg. He added that "the mortgage market is second to Treasuries in terms of fixed-income liquidity and it's challenging for us to see it losing that distinction under UMBS."