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Despite Predicted Rate Hike, RMBS Outlook Remains Strong

shutterstock_347449652The Kroll Bond Rating Agency released a report predicting the effects on residential mortgage-backed securities in light of the looming Fed rate hike, which now has a predicted probability of 46.7 percent, an increase from last week’s prediction of 26.9 percent. Kroll does believe that the effects from Hurricane Harvey and Hurricane Irma will have temporary effects on the RMBS market.

Rising rates, however, will have an effect on the housing market. The report predicts that increased interest rates will lower the number of mortgage originations, as well as mortgage refinancing, as higher rates make both the former and the ladder less attractive for potential and current consumers. Mortgage originations have fallen 9 percent year-over-year, according to data released by the MBA. Refinances have also declined 33 percent year-over-year.

Yet, even with fewer originations, issues of RMBS will continue to rise, according to the report. Through August, total RMBS accounts for $19.6 billion, which is an increase of 54 percent year-over-year. They expect—given outstanding deals that are not yet finalized—an additional $9.1 billion to be added to that figure by year’s end.

If Kroll’s outlook proves to be correct, the company says 2017 will be the most lucrative year since the housing crisis in 2008, surpassing 2015’s record.  The report says, “despite our expectations for constrained mortgage production to continue next year, primary market activity should remain healthy, led by a rise in private label securitization (PLS) issuance.”

Further, PLS will be driven by positive pricing in securitization. Some institutions are shifting their focus away from exclusivity with non-conforming loans to jumbo and high-balance conforming loans, which aid in the growth of the market. The report expects a similar situation going into 2018, so long as the market stays its course.

You can read report in its entirety, here.

 

About Author: Joey Pizzolato

Joey Pizzolato is the Online Editor of DS News and MReport. He is a graduate of Spalding University, where he holds a holds an MFA in Writing as well as DePaul University, where he received a B.A. in English. His fiction and nonfiction have been published in a variety of print and online journals and magazines. To contact Pizzolato, email [email protected].
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