KBRA Releases Research — RMBS Trend Watch: Issuance Slowing; Second Liens on the Way?

NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA releases its RMBS Trend Watch, providing an update on key RMBS market and performance themes as of year-to-date (YTD) 2022. In addition, we focus on issuance expectations for RMBS 2.0 in second-half 2022 (2H 2022) and the general potential for issuance growth in the second lien mortgage and home equity line of credit (HELOC) sectors.

Key Takeaways

  • 1H 2022 Issuance Volume: Q1 2022 issuance totaled almost $43 billion, the second highest post-GFC quarter, and was almost 2.5x above Q1 2021. Q2 2022 closed at nearly $28 billion, or $10 billion below our expectations, with prime lower 55% QoQ. Non-prime was down 20% QoQ, while credit risk transfers (CRT) were 14% lower in the same period.
  • 2H 2022 Issuance Expectation: KBRA expects Q3 2022 to close at approximately $20 billion, lower than KBRA projections of $29 billion, across the prime, non-prime, and CRT segments because of rising interest rates and an unfavorable spread environment for issuers. We expect Q4 2022 to close at $21 billion, bringing the full-year (FY) 2022 revised expectation to $112 billion. While the projected 2022 issuance volume is lower than we originally expected due to the abovementioned factors, $112 billion would represent the second highest post-GFC level on record.
  • Spreads: Issuance spreads to date have widened rapidly for all sectors as supply and demand volatility hit all-time highs.
  • The Second Lien Opportunity: At least $185 billion in second lien collateral was securitized pre-GFC across more than 300 private-label securitization (PLS) transactions. Whether this past market serves as a useful guide for the potential second lien market is an open question. However, we believe that second liens remain as a potential opportunity for increased PLS issuance, and as a relatively attractive option for borrowers interested in tapping into their home equity. Newly originated second liens generally compare favorably in credit attributes to those of the pre-GFC era, and the PLS market may see an influx of transactions backed by these loans if the spread environment allows.
  • RMBS 2.0 Credit Performance: YTD 2022 credit performance continued to show steadily improving conditions across all sectors.
  • Surveillance Activity: As of YTD 2022, KBRA conducted surveillance reviews of 88 transactions, resulting in 1,914 affirmations, 205 upgrades, and no downgrades.

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KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.


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