How does Trump’s victory affect the 2025 RMBS outlook?

Private label securitization issuance is expected to grow 12% in 2025 as this year’s market recovery should continue after a moribund 2023, Kroll Bond Ratings Agency said.

A deal worth $107 billion is expected next year, with the volume of RMBS 2.0 transactions projected to increase by 75% to almost $96 billion in 2024. If the 2025 forecast proves accurate, this year will be the second best year for PLS since the Great Financial Crisis.

This year’s production “shows a sharp contrast between the strength of the RMBS market in 2024 and 2023,” the KBRA report said.

“U.S. RMBS issuance increased significantly in 2024 amid a stable federal funds rate that finally began to decline in 2024, reaching below 5% in October.”

PLS activity measurements vary depending on who provides the data. A recent report from Morningstar DBRS reveals: So far this year the market is over $114 billionThat’s 84% ​​higher than the recession in 2023. It also surpassed $113.4 billion in volume in 2022, which is two months away from 2024.

KBRA’s estimate This year’s RMBS 2.0 was $67 billion in February and that was a $10 billion increase from an earlier outlook.

Uncertainty regarding the near-term interest rate environment may affect next year’s operations. This looks set to be the main theme for the rest of this year and possibly early 2025.

“With the volatility expected from the change in US administration, capital markets may react strongly to changes in employment data and Fed interest rate decisions. “While short-term disruptions may occur, KBRA believes spreads will stabilize as we approach mid-2025, when there will be greater clarity on the incoming administration’s policies.”

The rating agency also suggested the Trump Administration could delay or suspend the loan indefinitely. Federal Housing Finance Agency efforts to implement updated credit scoring models for the compliant credit market.

“Previously, GSE policy under the Trump administration tended to limit federal intervention, so a similar approach could deprioritize or shift this and other affordability-related updates,” KBRA said. he said. “The residential mortgage market may experience some disruption as stakeholders adjust to potential policy changes or are impacted by compliance costs.”

As for the performance of mortgages, delays so far this year It remains low, especially for prime deals where the rate remains below 1%.

Even serious delinquencies, such as loans 90 days or more past due, remained stable throughout the year.

The exception is the non-prime sector, which had a significant default rate of 2.9% as of October. Moderate increases in both early- and late-stage delinquencies on non-prime mortgages were also observed, at 6.3% for delinquencies of 30 days or more and 3.9% for delinquencies of 60 days or more.

“While non-prime products have seen an increase in defaults, we view this trend as a return to normal rather than an indicator of structural weakness,” KBRA said. he said.

unusually slow prepayment speeds The rating agency added that these delays were highlighted but did not undermine the resilience of the non-prime market.

“Annual net losses for all RMBS 2.0 assets in the KBRA indices are close to zero,” the report stated. “Although the ‘lock-in effect’ of low fixed interest rates is expected to keep (prepayment rates) low for loans originating through 2022, a broad-based increase has emerged recently as mortgage interest rates have fallen; interest rates have reached 6.1% and non-loan “Interest rates reached 6.1% and were at their highest level at 11.5% as of October.”

Improved underwriting standards for 2025 and existing mortgages with largely fixed rates “are expected to sustain mortgage performance through 2025, with only slight credit softening expected primarily in non-prime segments,” KBRA said.