Although an expected increase in interest rates is likely to put a dent in annual mortgage originations, issuance of residential mortgage-backed securities is still expected to rise.
Next year, the volume of home-lending activity is expected to decline as a result of an anticipated increase in interest rates on mortgages.
Lower originations will likely lead to weaker credit standards — though at a measured pace as declining refinance volume will give loan officers a greater incentive to spend more time on more difficult transactions.
Those conclusions were discussed in
Mortgage Rates Creating Ripples in RMBS 2.0; Waves to Follow? from Kroll Bond Rating Agency.
With less refinancing and longer loan lives, upward pressure will be placed on delinquency as
there is more opportunity for life events to occur and affect performance.
But Kroll projects that the issuance of RMBS 2.0 — bonds issued after 2009 — to rise. The growth will be driven by increases in private label securitization activity.
“KBRA expects potential changes to RMBS deal structures to account for the effects of extending mortgage and bond lives, which has already started to occur in some of the more recent GSE CRT deals via minimum credit enhancement thresholds,” the report stated.
