Standard & Poor's is betting on the resurgence of the private label U.S. RMBS market.
According to a report the ratings agency published today, non-agency origination will be boosted by steps the Federal Housing Finance Agency has taken in order to reduce the level of government support in the mortgage market and encourage higher private investment.
The FHFA on Oct. 4 published its white paper regarding a proposed framework for a common securitization platform and a model Pooling and Servicing Agreement.
"The GSE and FHA loans have made up most of the market for the past few years, but this isn't a long-term solution because of the burden of government support on tax payers," explained credit analyst Sharif Mahdavian. "We believe non-agency activity in the prime market will slowly pick up in the future once investors gain confidence in today's underwriting standards and credit quality."
The current private label market consists primarily of "super prime" loans, which S&P said, excludes most borrowers. In order for non-agency loans to rise in the market, lenders will have to open up to more average borrowers. "We think that future securitization can embrace more prime mortgages once investors get more comfortable with today's underwriting standards."