Issuance of mortgage-backed securities was strong in the first quarter, boosted by low rates, a strong housing market, and investor fear of Asian exposure. But mortgage bankers and analysts say the surge may have peaked.
Fannie Mae, Freddie Mac, and Ginnie Mae, which have no exposure to troubled Asian economies, issued $132.6 billion in the quarter, 68% more than a year earlier.
The initial effect of the Asian situation was to lower interest rates, and this got refinancing engines revved up, said Nancy J. Kimelman, chief economist for Technical Data in Boston.
"The mortgage market is going to be a very hot market for the rest of the year, but clearly the first quarter was the high point for the market," Ms. Kimelman said. Refinancing activity has already declined, she added.
Mortgage bankers agreed. "You couldn't design a better mortgage banking atmosphere than we had for the first quarter," said Patrick S. Flood, president of HomeBanc Mortgage Corp. of Atlanta. HomeBanc's refinancing business sank from about 30% of all mortgages in March to 12% in May, and the expectation is that the trend will continue, Mr. Flood said.
"We're expecting the Sun Belt Southeast and Southwest to continue to be exceptional performers in the second half for home resales and new home sales," he said. But he said the second quarter would end up underperforming the first, with originations down and purchase activity stable.
Fannie issued $58.3 billion in the first quarter, 44% of the total for the government sponsored mortgage enterprises, the Bond Market Association said. Freddie Mac issued $44.3 billion (33.4%) and Ginnie Mae $30 billion (22.6%).
Some traders were surprised by the size of Fannie's lead. "The Fannie- Freddie balance is not what I would have thought it would have been," said one Wall Street trader.
But he was not surprised at the increase in first-quarter volume, which he attributed to refinancings or "recycling of old mortgages." The net new supply of mortgages is a pretty steady figure, he said, at about $125 billion a quarter.
The full-year issuance record for the government sponsored enterprises, $568.1 billion, was set in 1993, said Andy Nyvo, vice president and director of market statistics at the Bond Market Association. The 1998 figure would come in at $530 billion if quarterly levels stay the same, he said. But if rates drop, originations may fall.
There is a "pretty good chance" of a rate hike by the Federal Reserve as soon as July, Ms. Kimelman said. "That will put somewhat of a damper on housing activity and mortgage activity," she said.
The rise in mortgage-backed issuance reflects refinancings and net demand for housing, she said. "We've been seeing a fast pace of real estate activity and ... an enormous interest in refinancings" in the first quarter, she said. The new demand for housing was spurred by low rates, she added.
Secondary-market trading was also robust in the first quarter. Daily trading volume averaged $67.4 billion, 64.8% more than a year earlier, according to the Bond Market Association.