Global banks earned $1 billion from trading government-backed U.S. mortgage securities in the first half of 2019, data shows, a fivefold increase on last year for what industry sources say is the fastest growing revenue source in investment banking. The shift this year to a more dovish interest rate policy by the U.S. Federal Reserve has sparked a surge in investor demand for packaged-up home loans issued by mortgage agencies Fannie Mae, Ginnie Mae and Freddie Mac. Banks that trade these securities, known as agency residential mortgage-backed securities (RMBS), have profited both from increased commissions on trading them as well as holding them on their books as they appreciated in value. The boom in trading comes just over a decade after the global financial crisis, caused in part by the collapse in value of much riskier bonds linked to U.S. home loans that banks packaged up and sold to unwitting investors. Agency RMBS are considered far safer and higher quality than the subprime pools that sowed the seeds of the so-called subprime mortgage crisis in 2007. The data from research house Coalition shows global banks made just $200 million in revenues in agency RMBS in the first half of 2018,… Read full this story
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