Residential mortgage backed security issuance in the U.S. 2003-2018

Residential mortgage backed security issuance in the United States from 2003 to 2018 (in billion U.S. dollars)

by M. Szmigiera, last edited Aug 9, 2019
Residential mortgage backed security issuance in the U.S. 2003-2018 The year 2006 saw the peak in issuance of residential mortgage backed securities, at 1.28 trillion U.S. dollars. This was also at the peak of the housing bubble which was one of the triggers of the 2008 Financial Crisis. Since then mortgaged backed securities are less popular, but the issuance increased to 181 billion U.S. dollars in 2018.
What are mortgage backed securities?

A mortgage backed security is a financial instrument in which a group of mortgages are bundled together and sold to the investors. The idea is that the risk of these individual mortgages is pooled when they are packaged together. This is a sound investment policy, unless the foreclosure rate increases significantly in a short amount of time.

Mortgage risk

Since mortgages are loans backed by an asset, the house, the risk is often considered relatively low. However, the loan maturities are very long, sometimes decades, meaning lenders must factor in the risk of a shift in the economic climate. As such, interest rates on longer mortgages tend to be higher than on shorter loans. The ten year treasury yield influences these rates, since it is a long-term rate that most investors accept as risk-free. Additionally, a drop in the value of homeowner equity could lead to a situation where the debtor is “underwater” and owes more than the home is worth.
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Residential mortgage backed security issuance in the United States from 2003 to 2018 (in billion U.S. dollars)

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