Tag Archives: Fitch Ratings

While perhaps not completely out of the woods yet, residential mortgage backed securities (RMBS) are on the mend with some improved performance of late, according to Fitch Ratings. An ""improving U.S. housing market and stable macro environment"" are boosting performance, leading Fitch to upgrade about 480 RMBS bonds so far this year and harbor a ""Positive Outlook"" on about 800 RMBS bonds. Looking ahead, the agency does not anticipate widespread upgrades in the year to come.

In some markets, the recent home price gains may actually be too rapid, leading to concerns of a market imbalance that could eventually stall or reverse the positive trend, according to an analysis from Fitch Ratings. While the unemployment rate is trending down and low mortgage rates are helping with affordability, certain areas are seeing prices accelerate far beyond job growth and incomes. This particular problem has been especially notable in markets that have not fully recovered from the previous bubble, which includes several cities in California, the agency found.

Among the available foreclosure prevention tools, short sales are becoming the weapon of choice for servicers while the use of loan modifications has slowed, data from Fitch Ratings revealed. For example, among bank servicers, the percentage of resolutions in the loan modification category decreased to 26 percent in the last half of 2012 from 57 percent in the first half of 2010, according to Fitch's latest quarterly index. Meanwhile, short sales showed significant increases over the last couple of years. In 2012, short sales represented 51 percent of resolutions for bank servicers, up from a low of 20 percent in 2010.

Fitch Ratings found cumulative U.S. CMBS defaults moved higher in the first quarter as the office sector struggled. The U.S. CMBS cumulative default rate for fixed-rate CMBS rose to 13.6 percent in Q1 2013, up 18 basis points from the previous quarter, according to the rating agency.

While some might be rejoicing at the recent rising home prices and rising home sales seen across the nation, Fitch Ratings ""still views these gains cautiously."" In fact, the agency predicts price gains will slow and perhaps even reverse over the next year. Fitch expects a price ""trough in the middle of 2014"" but suggests inflation will keep prices from falling more than 3.5 percent.

Rising home prices and higher levels of short sales are leading to declining loss severities in the residential mortgage-backed securities (RMBS) market, according to Fitch Ratings. The agency's quarterly report noted its Loss Severity Index declined from 67.5 percent in the first quarter of 2012 to 64.2 percent in the first quarter of this year. Loss severities on short sales tend to be 10 to 15 percent lower than loss severities on REOs, according to Fitch. Also, short sales are generally resolved about 12 months sooner than REOs, the agency stated.

Servicers continue to make strides in home retention efforts, completing more than 360,000 retention actions in the fourth quarter of 2012. However, Fitch Ratings detects continued weak asset quality trends, especially among loans modified from 2008 through 2010. In fact, Fitch's findings lead the agency to fortify its belief that troubled debt restructurings should be counted as nonperforming assets. ""[W]e regard the high delinquency and foreclosure rates for recently modified mortgages as reflective of still elevated residential mortgage asset quality problems,"" Fitch said.

Mortgages originated from 2010 and into early 2012 are seeing elevated prepayment rates as low mortgage rates continue to encourage refinance activity, Fitch Ratings explained in a recent report. Despite the high levels of prepayment activity, the rating agency suggested ""the credit implications have been modest to date due to the high overall credit quality of the original pools."" According to Fitch, prime RMBS mortgage pools issued since 2010 had an average conditional prepayment rate (CPR) of about 42 percent.

Two large loan modifications helped bring down the CMBS delinquency rate, which fell 30 basis points (bps) to 7.61 percent, down from 7.91 percent in January, according to Fitch Ratings. The dollar balance of delinquent loans also sank below the $30 billion mark, a first since February 2010, Fitch stated. The dollar balance of delinquent loans also sank below the $30 billion mark, a first since February 2010, Fitch stated.

Increased profits at home improvement outlets underscore Fitch Ratings' view that the housing recovery is in its early stages, the ratings agency said. Fitch pointed to ""solid 4Q12 results"" released by Home Depot (which saw a 4.6 percent rise in same-store sales last year) and Lowe's (which reported a 1.4 percent increase in same-store sales). Fitch projects the two retailers will generate same-store sales growth of 2-4 percent, reflecting ""a slightly faster growth rate in sales channels serving professionals.""