Borrowers included in 2014 vintage private label residential mortgage pools as well as 2014 vinatge GSE risk share bonds have taken on more debt, as evidenced by the transactions higher LTVs.

For 2014 private label RMBS, early data shows that the higher LTVs have led to a  slight deterioration in performance. GSE risk share bonds on the other hand continue to show strong performance, according to Fitch Ratings.

High credit scores and borrowers with a lot of equity in their homes support the strong performance of bonds transferring the risk of mortgages guaranteed by Fannie Mae and Freddie Mac since July 2013, according to Fitch Ratings.

The risk sharing deals —called Structured Agency Credit Risk (STACR) Debt Notes (issued by Freddie Mac) and Connecticut Avenue Securities (issued by Fannie Mae)— span a total of 11 deals referencing over $376.8 billion of mortgage risk thus far.

Agency mortgages included in recent reference pools have high average FICO scores of 760, even compared with the 716 FICOs of some of the strong-performing vintages, such as those originated prior to 2005.  

Fitch believes that the clean payment behavior to date reflects this higher credit quality of the borrowers. “Of the mortgage loans included in the transactions issued to date, only 20 bps are currently delinquent,” stated Fitch in a report today.

However the weighted LTV in 2014 deals did show a slight increase from the LTVs in 2013 risk-share deals. According to Fitch, of the 8 deals completed in 2014 the weighted LTV is 82 compared to an LTV of 75 for the 2013 deals.

Expansion into higher LTV loans supports the GSEs bid to attract a larger investor base for its bonds.  

Speakers on a GSE Risk Share panel at ABS East in September said it is likely that the GSEs will look to expand issuance in 2015 and potentially transfer more risk as they look to develop a large and broad market that can be durable through a variety of economic cycles.

The chart below lists the numer of transactions the GSEs have issued since 2013.

Private label RMBS has also shown a moderate decrease in borrower equity that has led to some slight deterioration in performance, according to Fitch .

A total of 14 deals have been issued year to date, totaling $4.3 billion.  Fitch data indicates that although  FICO scores remain in range of post crisis issuance, LTVs in 2014 vintage deals are slightly higher. The weighted average LTV of loans pooled so far this year is 70%, compared to LTV of 60% for 2010 vintage deals.

The chart below lists several credit attributes for residential mortgage loans included in securitization pools over the years.

"The modest increase in risk reflects a small step towards a more traditional prime borrower credit profile after several years of pristine credit attributes,"said Managing Director Grant Bailey.

Fitch stated in a report today that the small change in 2014 credit attributes is apparent in the percentage of loans delinquent in 2014 transactions; at 26 bps delinquencies are  already above the 18bps of 2013 vintage and the 11bps of  2012 vintage.

However, no delinquent loan is more than 60 days delinquent and Fitch Ratings expects delinquency to normalize in the coming months. “Across all pools this month, including more than 20,000 outstanding loans, only two borrowers in transactions CSMC 2014-SAF1 and CSMC 2012-CIM2 were more than 60 days delinquent,” stated Fitch analysts in the report. “Foreclosure initiation has not yet been reported for either of them”.

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