Submitted by Reggie Middleton
From Bloomberg: Mortgage-Bond Leverage Reaches 10-to-1, Markets Heal
Jan. 19 (Bloomberg) — Wall Street firms are loosening terms of their lending to mortgage-bond investors as markets heal, an RBS Securities Inc. executive said.
Repurchase agreement, or repo, lending against the debt has expanded so much since freezing in late 2008 that some banks now offer as much as 10-to-1 leverage and terms as long as one year on certain securities backed by prime jumbo-home loans, said Scott Eichel, the Royal Bank of Scotland unit’s global co-head of asset- and mortgage-backed securities.
“It’s getting very competitive,” Eichel said in a Jan. 14 interview at Bloomberg headquarters in New York. “We’re at the point where I don’t think we would feel comfortable if things go too much further.”
Increasing availability of leverage for mortgage-bond buyers was among the reasons that JPMorgan Chase & Co. and Barclays Plc each said in analyst reports this month that a record rally in U.S. home-loan securities without government- backed guarantees may continue even amid record foreclosures and further declines in home prices.
Stamford, Connecticut-based RBS Securities was the second- largest underwriter of structured-finance securities worldwide last year, according to newsletter Asset-Backed Alert.
It is interesting that article can state that the mortgage bond markets are healing while the property markets continue to drop and the foreclosures behind them continue to rise. The increased use of leverage against this backdrop make it clear that this market is about short term trading profits and have absolutely nothing to do with fundamentals. Additionally, it shows we have learned nothing from the last 3 years and are quite comfortable being set up for another crash as long as some short term profit can be had. And where are the regulators while all of this is going on??? See It’s HELOC Deja Vu,All Over Again, A Fundamantal Investor’s Peek into the Alt-A Market and If Anybody Bothered to Take a Close Look at the Latest Housing Numbers… to see how well suited the macro and fundamental backdrop is in the application of 10x leverage in this market.