US RMBS market participants do not need to worry about growing whole loan sales eating their lunch — the market is big enough to support both distribution outlets, even as the share of non-agency mortgages being securitized is falling.
There may be more sales of whole loans but the size of the mortgage market pie is growing for everyone.
As case in point, non-qualified mortgage RMBS issuance through 2025 is outpacing that of 2024, with 80 deals raising $32.6bn so far.
Non-QM originations are growing, and that is feeding both whole loan demand and providing more dry powder for RMBS collateral.
Even the same insurance companies who buy whole loans still have a place for RMBS bonds for various reasons.
RMBS provides liquidity that whole loan sales cannot match. They also offer the flexibility of participating in various parts of the capital stack as opposed to unitranche style whole loans.
And the complexity for asset managers or issuers to set up Separately Managed Accounts (SMAs) to manage whole loan portfolios for insurance companies that do not have the resources to do so makes many reluctant to get involved unless the fees are lucrative.
It is true that the market is saturated with competition as many asset managers and credit funds are trying to lure insurance companies with SMAs, driving down fees to 25bp-35bp of the portfolio size.
However, the efficiency and simplicity of securitization for both issuers and investors alike means that US RMBS volumes face no real threat from growing whole loan sales.