Banks offer bonds that spread mortgage risk as housing market surges – report

And analysts say the recent entry of a regional bank shows there is "potential for this mechanism to grow"

Banks offer bonds that spread mortgage risk as housing market surges – report

Surging prices in the country’s housing market has encouraged banks to sell investor-backed bonds that spread the risk of mortgage defaults, according to a report from the Wall Street Journal.

WSJ pointed to a recent move by Texas Capital Bank to sell $275 million of this type of security– which is backed by short-term loans made to mortgage lenders – as the latest example of regional banks entering a market that had previously been dominated by financial giants like Citigroup and JP Morgan.

Read more: Debate grows over Fannie and Freddie securities guarantee

“The addition of Texas Capital Bank to the roster in March this year shows there is potential for this mechanism to grow,” Simon Boughey, an analyst at Structured Credit Investor, told the WSJ.

Analysts told WSJ that the potential for higher yields, the positive growth outlook of the housing market, and a continued improvement in the borrowers’ credit quality are making the credit-risk transfers attractive to investors.

“People want exposure to housing and consumer markets that are performing,” Kaustub Samant, a securities analyst at JPMorgan, told WSJ. “Risk transfer securities are one of the few places that give high returns in this environment.”

LATEST NEWS