It's official: Mortgage securities are back in vogue.
With investors clamoring for mortgage assets, Wall Street firms and banks issued $82 billion of mortgage securities in the first half of 1997, up 75% from a year earlier, according to a report from Securities Data Co., Newark, N.J. It was the highest first-half volume in three years.
A search for yield drove many investors into the mortgage market from the corporate bond and Treasury markets, industry observers said. Mortgage securities buyers also showed renewed interest in sophisticated structures, after shying away from these products for the past couple of years.
"It's a good time for the market," said Ryan Johanson, a vice president at Norstar Investment Management, a private investment firm in Greenwich, Conn.
Mortgage securities represent interests in pools of mortgages. The most common type is the pass-through, so-called because payments are passed directly to investors on a monthly basis.
More sophisticated, multiclass structures like Real Estate Mortgage Investment Conduits, or Remics, were also snapped up in the first half of 1997. Investment banks create these products by packaging together pass- throughs and whole loans. The resulting security is sliced into various pieces, or tranches, that carry different interest rates and maturities.
The market for Remics tanked in 1994 and 1995, when sharp rises in interest rates caught investors off-guard. Now, that market is rebounding, thanks to stable rates, simpler structures, and investors' hunt for yield, industry observers said.
"People are looking at the multiclass market more so than they did in 1996," said Douglas Robinson, a spokesman for Freddie Mac, which buys loans that are turned into mortgage securities.
Investment houses have bulked up their mortgage businesses to meet demand. These companies serve as a link between mortgage originators and investors.
Bear, Stearns & Co. led the pack in the first six months. It managed $11.5 billion of mortgage deals, up from $7.2 billion a year earlier, according to Securities Data.
Bear Stearns credits the boom in demand to a breadth of talent ranging from research to selling.
"We're aggressive in the marketplace, and we have great distribution capabilities," said Jeffrey A. Mayer, Bear Stearns' senior managing director in charge of mortgage operations.
Among other underwriters, Chase Securities came on strong, issuing $1.5 billion of securitizations, up from $398.4 million in the same period of 1996. The rise left Chase as the No. 15 issuer.
But some other bank-run operations slowed down or even stopped-at least for the moment.
NationsBank Corp., which has been making a big push in commercial securitizations and asset-backed deals, handled $148.5 million of mortgage deals in the first half, down from $404.1 million a year earlier. And securitization units of Citicorp and First Union Corp. both reported no mortgage volume in the first half, compared with $442.2 million and $218 million, respectively, a year earlier, Securities Data reported.