January 8, 2013 / 2:05 PM / in 5 years

TEXT-Fitch QM/QRM clarity, more new deals are key areas for U.S. RMBS

Jan 08 - Final clarity as to what constitutes a qualified mortgage and the likelihood of increased issuance will be key developments that will shape the coming year for U.S. RMBS, according to Fitch Ratings in its expanded outlook report for the sector.

The Consumer Finance Protection Bureau’s (CFPB) intent to release final definition for qualified mortgages (QM) will be a key milestone for the market. The final ruling on QM will provide some clarity to the definition of a QRM as proposed under Dodd-Frank, as the latter cannot be any broader.

‘Securitization of QRMs exempts issuers from risk retention and premium capture requirements so resolving these definitions will be a critical breakthrough for restarting the private-label RMBS market,’ said Senior Director Suzanne Mistretta. ‘Finalization will, at a minimum, provide clarity to the market and allow institutions, particularly banks, to assess the costs of re-entering the market.’

While new issue activity is already on tap to rise in 2013, Fitch says that the volume will pale in comparison to historical levels. Nonetheless, investor demand is strong thanks largely to solid performance of RMBS 2.0 transactions and historically low yields.

Several key announcements by the Federal Housing Finance Agency this year are supportive of a housing and mortgage market recovery. They include the announcement of the streamlined short sale process and rep and warranty repurchase framework.

These developments come as the mortgage markets continue their slow recovery. There still remains disparity, however, among many metropolitan statistical areas (MSAs). For instance, markets Detroit, Phoenix, and Atlanta are stabilizing, with some even beginning to turn around. Conversely, key states such as New York and New Jersey are still struggling with a backlog of distressed inventory and long liquidation timelines.

That said, ‘Inventory is declining and distressed liquidations have sharply dropped while mortgage delinquencies are improving for most sectors,’ said Mistretta.

Additional information is available in Fitch’s ‘U.S. RMBS 2013 Outlook’ report, available at ‘www.fitchratings.com’ or by clicking on the link at the top of the press release.

Link to Fitch Ratings’ Report: U.S. RMBS 2013 Outlook

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