Fitch: More New Deals, More Risk, for U.S. RMBS

MBA NewsLink Staff

June 29, 2018

A spike in new private-label residential mortgage-backed securities issuance has surfaced of late along with some credit risk trends that are worth watching in the coming months, said Fitch Ratings, New York.

Fitch said it rated nearly 50 rated RMBS deals over the past year, the most active period of new issuance since the onset of the financial crisis. The past few weeks have also seen an influx of new deals come to market that will add significantly to that total. That said, U.S. RMBS group head Grant Bailey said some traditional investors remain on the sidelines, in part because of concerns that certain conflicts of interest have not been properly addressed.

The report said credit risk has also increased, perhaps most notably in non-prime RMBS where low-doc loans are increasingly common. Additionally, government-sponsored enterprise risk transfer deal performance, although still strong, has been weakening the past couple of years, and increasing amounts of loans with shorter re-performing periods are surfacing in RPL RMBS.

"Also concerning some RMBS investors are meaningful disparities and a general lack of clarity around mortgage reps and warranties," Bailey said. "Rating agencies can add real value in this area by identifying differences in rep and warranty frameworks more clearly for investors and incorporating the differences more definitively in their analysis."

The report said counterbalancing credit expansion has been supportive home prices, which have been growing at roughly 5% a year for the past few years and are unlikely to slow down in the near term. "The strong housing market, coupled with a largely supportive macro environment, continues to buoy the rating and performance outlook for U.S. RMBS," Fitch said.

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