Morningstar DBRS's review of 42 U.S. residential mortgage-based securities (RMBS) found their 435 classes of bonds not only withstanding the currently challenging mortgage market but even improving somewhat on a net basis.
In a December 13 report, the ratings agency noted it was upgrading 28 of the classes and confirming its ratings on the remaining 407, from 40 RMBS classified as legacy deals, and two as home equity lines of credit (HELOCs).
"The credit rating upgrades reflect a positive performance trend and an increase in credit support sufficient to withstand stresses at the new credit rating level," the report said.
The transactions' credit strength comes despite a historic slowdown in existing home sales, which Fannie Mai forecasted in its December 16 "Economic Developments—December 2024" report to reach 4.25 million in 2025. That's a 4.8% increase over 2024's 4.06 million, but still down 20.3% compared to 2019.
"We expect the increased inventory of homes available for sale will drive a modest improvement in existing home sales next year," the government-sponsored enterprise (GSE) says, adding the new-home sales remain a bright spot, averaging a 682,000 annualized sales pace in 2024, up from 595,000 between 2015 and 2019.
Morningstar DBRS says the assumptions behind the ratings actions take into account the agency's baseline macroeconomic scenarios. For North America, that includes a benign growth outlook as central banks respond to disinflation by lowering interest rates. In addition, the labor market is anticipated to remain largely unchanged, with average unemployment in the U.S. and Canada rising by only 0.2%.
In its report, Fannie Mae says stickier than expected inflation will inhibit meaningful declines in the 10-year Treasury rate, keeping mortgage rates elevated.
"We forecast the average mortgage rate to remain above 6% in 2025," the report says, adding, "Unless economic growth starts to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, moving only slightly downward to around 6% by the end of 2025."
