Credit standards for loans included in residential mortgage-backed securities are expected to loosen next year as interest rates rise.
In 2017, new RMBS transactions will be
backed by more diversified collateral, while they will also feature some structural changes.
More importantly, the performance of existing mortgage securitizations are expected to remain strong or even improve during next year.
Those were some of the predictions made by Moody’s Investors Service in 2017 Outlook — Credit Will Expand and Performance Will Remain Strong.
Moody’s Vice President Sonny Weng said that the
collateral quality of new prime jumbo deals will be mostly strong in 2017.
But Weng warned that originators will feel pressure to cut credit standards in order to maintain volume lost from rising interest rates. This will lead to some credit weakening.
The outlook for nonprime RMBS
has improved.
“After two years of sporadic nonprime RMBS issuance, this market will develop further in 2017 on the back of increased demand for loans from both borrowers with impaired credit and investors looking for higher yielding assets,” Moody’s said. “Although transactions will be of lower credit quality than post-2010 prime jumbo deals, they will still be stronger than pre-2010 subprime and Alt-A transactions.”
Weng expects Fannie Mae and Freddie Mac to develop new credit-risk transaction structures or change up the mix of existing structures.
Also, as the government-sponsored enterprises continue to unload re-performing and nonperforming loans, more of these loans will be securitized.
