Wall Street did its part in 1996 to raise the profile of mortgage- backed securities.
Led by Lehman Brothers, investment banks securitized $94.5 billion worth of mortgage loans in 1996 - almost twice as much as in 1995, when they packaged $48.1 billion.
Declines in interest rates, low inflation, and strong demand from investors accounted for the 1996 increase, said Richard Peterson, an analyst with Securities Data Corp., which gathered the underwriting information.
Indeed, 1996 was a strong year for the issuance of debt and equity securities. Mortgage, asset-backed, corporate debt, and stock issues all leaped.
Last year's activity in mortgage issues indicates growing market acceptance as investors rebounded from the trouncing they took a few years ago. In 1993 - the industry's record year - $415 billion of new mortgage securities was sold. But Wall Street sold just $178 billion in 1994 and less than $50 billion in 1995.
In 1996, Lehman Brothers packaged 69 pools of mortgage loans into $15.5 billion of securities. The activity gave Lehman 16.4% of the market, just edging Bear, Stearns & Co., which had $15.2 billion of business, or 16.1%. The rivals' positions were reversed in 1995, when Bear Stearns underwrote $6.8 billion to Lehman's $6.4 billion.
Salomon Brothers made the biggest jump in the rankings, from No. 9 in 1995, with $2.5 billion, to No. 3 in 1996, with $12.2 billion. Goldman, Sachs & Co. leaped from No. 13 in 1995, with $854 million, to No. 8 in 1996, with $3.6 billion. PaineWebber; Donaldson, Lufkin & Jenrette; and Merrill Lynch & Co. all retained their 1995 rankings, on bigger volume.
While big investment banks dominate the upper ranks of issuers, two bank-owned investment banks did crack the top 10: Natwest Markets at No. 9, with $3.4 billion of mortgage-backed issues; and Credit Suisse-First Boston at No. 10, with $2.9 billion.
Chase Manhattan Corp., at No. 14, also topped the billion-dollar mark, with $1.1 billion. NationsBank was ranked 16th, with $731 million, Citicorp 18th, with $442 billion, Union Bank of Switzerland No. 19, with $227 billion, and First Union No. 20, with $218.4 billion. The appearance of First Union marks the company's debut as a mortgage debt underwriter.
How will this year shape up? Industry observers expect bank-owned underwriters to expand their volume and more banks to enter the fray.
But overall securitization will be down, because mortgage volume will slip from last year's level, said Joseph Hu, managing director at Oppenheimer & Co.
Still, more lenders are expected to sell rather than hold their mortgages. As a result, a bigger percentage of the loans will find their way to Wall Street. Mr. Hu expects 61% of this year's volume to be turned into securities, compared with about 56% that was packaged last year.
Indeed, 1997 "will continue the recovery of the mortgage-backed market" even if volume is down somewhat, Mr. Hu said.
Investors want to get back in after getting burned earlier this decade, he said. "They've learned their lesson."