Mortgage bond issuance plunges in 2008

NEW YORK (Reuters) - U.S. mortgage-backed securities issuance plunged in 2008 as uncertainty reigned in the housing market and investors shied away from risky instruments, a survey showed on Wednesday.

Thomson Reuters said U.S. mortgage-backed securities issuance totaled $187.4 billion in 2008, down sharply from $941.1 billion a year ago, a drop of about 80 percent.

That is the lowest since 1995, said Matthew Toole, an analyst in the deals group at Thomson Reuters.

"Concerns over declining housing prices, fallout from the subprime mortgage crisis and the federal bailout of mortgage giants Fannie Mae and Freddie Mac, brought on the complete deterioration of the once lucrative mortgage-backed securities business," he said.

Issuance of bonds backed by companies other than Fannie Mae and Freddie Mac has virtually come to a halt as investors refuse to buy securities backed by loans where payments are not guaranteed.

Barclays Capital, the investment banking arm of UK lender Barclays, was the top underwriter of U.S. mortgage-backed securities in 2008. Barclays Capital underwrote 61 issues of mortgage-backed bonds, totaling $34.1 billion, an 18.2 percent market share.

Bank of America Securities LLC ranked second among U.S. MBS underwriters for 2008, with a 13.7 percent market share. The company underwrote 39 issues totaling $25.7 billion.

Credit Suisse Group was third, with a 13.1 percent share. The firm underwrote 43 issues worth $24.4 billion.

Originators have shifted supply to the agency MBS market. The agency MBS market has overwhelmingly captured the lion's share of issuance in 2007 and 2008, with non-agency mortgage origination virtually nonexistent as buyers fled the sector on growing concerns about mortgage foreclosures.

Thomson Reuters tracks mortgage bonds backed by whole commercial and residential real estate loans as well as the mortgage-backed securities initially packaged by Fannie Mae, Freddie Mac and Ginnie Mae. Interest-only and principal-only strips of the so-called agencies are not tracked.

(Reporting by Julie Haviv; Editing by Neil Stempleman)