The residential mortgage-backed securities and related collateralized debt obligation sectors lead the pack in both realized and expected future credit losses from U.S. structured finance issuances, according to Fitch Ratings. But it added commercial MBS are expected to experience losses at a lower level than many may have anticipated.
The report notes the housing price bubble has been and will continue to be the primary driver of losses for the total structured finance universe (which includes non-real estate asset-backed securities). RMBS total losses (realized losses plus expected losses) are expected to reach 12%, while CDO losses could reach close to 43% by the time all transactions fully mature. RMBS losses represent 92% of all SF losses.
Fitch added it expects total losses to increase to $376 billion, representing 10.6% of the original balance of $3.54 trillion. So far, about $94 billion of principal has been lost since July 2007, which is when the credit crisis started. It noted 50% of all realized losses to date (by balance) are from RMBS bonds collateralized by subprime mortgages.
On the good news side, 3,453 RMBS tranches, representing 12% of the total number of tranches outstanding in 2007, have been paid in full during the past four years. Many more tranches have partly amortized, with total repayment representing 58% of the original balance.
Meanwhile, CMBS transactions have the second-lowest realized and total losses of all asset classes, representing 0.5% and 4.0% of the original balance, Fitch noted.
Few CMBS have reached their maturity dates, and most require a balloon payment.
Fitch expects losses to increase materially, as loans potentially fail to repay at their maturity dates given value declines since the peak of roughly 40%.
But not only do issuers “longdate” final maturities, CMBS servicers have been extending loans that are covering debt service but perhaps not able to currently refinance, the rating agency said.
“Losses on CMBS will come in lower than many market participants may have anticipated despite a dramatic drop in property values,” explained Karen Trebach, a senior director at Fitch Ratings.
Daily Briefing | Thursday, November 10, 2011
Ocwen to Raise Equity, Agrees to Buy $15B of MSRs from JPM
Ocwen Financial Corp. this morning said it would raise $375 million of new equity and use some of the proceeds to buy $15 billion of mortgage servicing rights from JPMorgan Chase Co.
Bad News/Good News on Foreclosure Filings
Foreclosure filings increased 7% in October from the prior month with servicers and banks recording default notices, scheduled auctions, and lender repossessions on 230,678 U.S. properties, according to new figures compiled by RealtyTrac.
Average 30-year Rate Drops Below 4% Again
The average rate for a 30-year fixed rate mortgage during the week ending Nov. 10 came in below 4% for the second time this year, remaining near record lows.
Farmer Mac Loss Due to Derivatives
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FHFA Responds to Criticism of GSE Bonuses
The bonuses paid to Fannie Mae and Freddie Mac executives are structured to retain managers who have the skills to run the giant mortgage companies, according to a letter Federal Housing Finance Agency acting director Edward DeMarco sent to several senators on Thursday.
Radian Gaining Market Share
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Fiserv: More Room to Fall for Home Prices
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GAO Asked to Study Costs of Financial Crisis
For more than a year, Republicans have been hammering Democrats for what they say are the hefty economic costs of new financial regulations.
Covered Bond Bill Introduced in the Senate
A bipartisan group of senators, including Bob Corker (R-Tenn.), Mike Crapo (R-Idaho), Kay Hagan (D-N.C.), and Charles Schumer (D-N.Y.), Wednesday sponsored new legislation that would set up a covered bond framework in the U.S.
New Wells Fargo Unit Will Finance REITs
Wells Fargo Co. this week launched a new unit to provide financial services to publicly traded real estate investment trusts involved in commercial properties.