If you don’t think the housing market is still floating on a Washington-inflated lifeboat, think again.
Here’s Fitch analysing what’s about to happen to Residential Mortgage-Backed Securities values once the fed pulls out the scaffolding:
Fitch Ratings-NY-12 March 2010: Loss severities on distressed U.S.
residential mortgage loans are likely to rise this year as several key
government support programs expire, according to Fitch Ratings.
Low mortgage rates, homebuyer tax credits and government directed
loan-modification programs have led to an improvement in home prices and
loss severities since second quarter-2009. But the expiration in the
coming months of both the homebuyer tax credit and the Federal Reserve’s
$1.25 trillion MBS purchase program will increase negative pressure on
home prices and loss severities, according to Senior Director Grant
Additionally, an increase in the liquidation of loans with unsuccessful
loan modifications is expected to add to the supply of distressed
inventory in the housing market. ‘Servicers are further along in
identifying borrowers ineligible for modifications and will likely be
more aggressive in liquidating those loans this year compared to last,’
said Bailey. ‘Less costly alternatives to foreclosure, such as
short-sales, should help stem rising loss severities due to the lower
costs and speed of the resolution.’
Loss severities on loans resolved through short-sales are approximately
10% lower than loss severities on loans in which the servicer takes
possession of the property. Additionally, the seasonal increase in
housing activity through the summer may delay the full impact of the
withdrawal of the government support programs until later this year.
Loss severity trends continue to be strongly dependent on home price
trends, as shown in Fitch’s most recent ‘RMBS Performance Metrics’
results. In the two years prior to the recent improvement, national home
prices dropped approximately 30% while loss severities on loans which
incurred losses doubled to record highs of 43% for private-label Prime
loans, 58% for Alt-A loans and 72% for Subprime loans.
Fitch’s RMBS Performance Metrics combines loan level data from Fitch
Ratings and LoanPerformance to show delinquency trends, roll rate
movement and loss rates across vintage, sector, and mortgage type. The
report also includes data on mortgage servicing trends, such as
modification activity and advancing percentages, as well as a summary of
bond rating changes.
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