A Bottom-Up Methodology to Computing the Size of the Agency Single-Family and Multi-Family CMO Market
Recursion has undertaken an intensive effort to compute the size of the Agency CMO market back to 2000. The size of the Agency CMO market is calculated by building up from the loan level. This data is provided by agency disclosure of the portfolio of each collateral group and collected from text files, pdfs, and other formats across single-family and multifamily CMOs. The formats of the disclosure files differed across agencies and changed over time, presenting a challenge to unify.
The inconsistent data quality posed another challenge. The single metric we used to assess quality was assets = liabilities. The existence of Re-Remics and IOs introduced overcounting, which we eliminated using an algorithm that closed the asset-liability gap, with the remaining portion largely explained by over-collateralization. In the end, we were able to construct a direct relationship with all single-family and multifamily CMOs and the loans backing them up via the “exploded method”.
We performed these calculations by agency for both single-family and multifamily loans on a monthly basis. Below find bar charts of the progression of the single and multifamily CMO markets back to 2000 on a year-end basis. The single-family CMOs for the three agencies are fairly homogenous. For multifamily CMOs, we include the CMOs collateralized by Ginnie Mae multifamily pools backed by Ginnie construction loans and project loans. For Fannie Mae, we include Fannie Mae GeMS (CMO deals backed by Fannie DUS pools), and for Freddie Mac, we include all Freddie K deals-- classifying them as 100% CMO due to their structure.
We can draw an abundance of observations from these charts. In the single-family space, although agency single-family pools ballooned in size, this expansion didn’t translate equally into CMO market size. It currently stands at $850B without double counting Re-Remics and IOs -- way below its peak of close to $1.2 trillion in 2011. Also, the steady rise of Ginnie Mae’s share of CMOs is particularly striking. For multifamily CMOs, the share increase of Freddie Mac K loans in CMOs is notable.
This breakthrough in CMO computation has two broad benefits. First, traders can obtain a comprehensive view of the properties of individual CMOs based on the underlying collateral using Recursion’s CMO Analyzer. Second, market analysts can utilize this new data to examine the behavior of underwriters (issuers) and investors across time. Then, we can use both Recursion’s CMO Analyzer and Cohort Analyzer to assess the likely response of each to changes in the economic, market, and policy environments.
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Please contact us if you have any questions about the underlying data referenced in this article.