Hot housing market allows banks to sell mortgage risk

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The hot housing market allows banks to sell new types of bonds that share mortgage and loan defaults with institutional investors.

Texas Capital Bank recently sold $ 275 million in securities to investors looking to capitalize on the outbreak of the pandemic boom in housing prices… The bonds are secured by short-term loans that the bank provides to mortgage lenders. In the event of default by the borrowers of these lenders, bond investors actually cover the losses.

These transfers are the result of efforts to protect Fannie Mae and Freddie Mac from the risk of a reversal in the mortgage market. Banks are now using them to raise capital or otherwise strengthen their balance sheets, a process that ultimately increases their lending capacity, analysts say.

Banks including JPMorgan Chase & Co. and Citigroup Inc. recently increased sales of risk transfer securities associated with mortgages, car loans and corporate debt. However, the arrival of regional banks heralds a new stage in market expansion, said Simon Boogie, an analyst at Structured Credit Investor.

“The addition of Texas Capital Bank to the list in March this year shows that this facility has potential for growth,” said Mr Boogie.

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