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Low Defaults Anticipated to Bolster RMBS Performance

Market Go Next BHAll post-2010 RMBS are anticipated to have strong performance as pre-2010 RMBS weak performance gradually improves, according to Moody’s Investors Service 2017 RMBS Outlook. The report attributes this forecast to steady home price appreciation, low interest rates, and the furthering of standardized servicing.

Moody’s forecasts that RMBS transactions will continue to improve due to prepayments and low defaults. The report also notes that single-family rental transactions' performance is anticipated to remain stable. The report does expect that there is a potential for improvement among operators that could reduce operating expenses in these transactions, though.

“Low default and steady prepayment rates will continue to bolster post-2010 RMBS performance, while RPL/NPL transactions will continue to benefit from low unemployment and rising wages in the coming year,” says Moody’s VP, Youriy Koudinov. “Similarly, robust demand for rental accommodation, rising home prices and strong interest alignment between SFR operators and bondholders will bolster the performance of SFR transactions.”

The report states that Moody anticipates pre-2010 RMBS will experience a decline in new defaults and a stabilization of re-default rates on previously modified loans.

“Any credit profile improvement will be deal-specific because generally improving credit performance will be offset by increased performance volatility stemming from a declining number of loans backing the transactions,” says the report. “Lower default rates and generally steady-to-declining loss severity rates will in most cases bolster the recoveries on senior bonds first, and on subordinated bonds in the long run.”

Further the report notes that tail risk is also declining as transactions age and remaining borrowers prove their ability to make payments. Moody says that this reduces their likelihood of default.

“As stronger borrowers repaid earlier, weaker borrowers remained in the pools,” adds the report. “However, by now, remaining borrowers who have stayed current on their mortgage payments since issuance or after modification have demonstrated a strong commitment to home ownership through the housing crisis.”

To view the full 2017 RMBS Outlook, click HERE.

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, Texas. Born and raised in Texas, Baer now works as the online editor for DS News.

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