U.S. dealers more than tripled mortgage "re-remics"
NEW YORK (Reuters) - Wall Street bond dealers more than tripled their businesses of restructuring risky residential mortgage-backed securities in the second quarter as the practice gains credence as a way to bolster portfolios.
Credit Suisse (CSGN.VX), JPMorgan Chase & Co (JPM.N) and Jefferies & Co (JEF.N) led Wall Street in restructuring nearly $20 billion in securities long shunned for their exposure to the housing crisis into salable parts, up from $5.9 billion in the first quarter, according to one primary dealer.
The dealers boosted their business as banks, insurance companies and other investors sought ways to protect their portfolios from losses and credit ratings downgrades, which can force them to write down the value of holdings or dump the securities into turbulent markets.
Dealers have also found hedge funds and other clients willing to take more risk, setting the stage for the restructured securities -- known as re-remics -- where cheap, existing securities are broken apart and refashioned into new bonds. In a restructuring, one part has increased protection from loss and another part accepts more risk but has greater potential for return.
Re-remics are a welcome sign of life for dealers whose securitization business has suffered as the housing crisis turned investors away from mortgage debt, except that supported by U.S. government agencies. Raising confidence among investors may be a step toward restarting securitizations of new loans, which lawmakers and policymakers see as an important way to boost consumer credit and bolster the U.S. economy.
The non-agency mortgage bond market, which at one point provided nearly half of credit for U.S. housing, has dwindled to $1.9 trillion from $2.5 trillion at the peak in 2007 due to lack of issuance, refinancings and defaults, according to TCW.
Increasing investor demand for re-remics has also helped buoy prices for mortgage bonds that could be used as collateral for the securitizations.
Credit Suisse and JPMorgan issued $5.26 billion and $4.36 billion in re-remics last quarter, respectively, according to a the primary dealer's data. Jefferies structured $3.33 billion.
(Editing by Leslie Adler)
