Better housing trends in many areas will improve the performance of legacy residential mortgage-backed securities, but they have a downside for future deals, according to a recent Moody’s Investors Service report.
“The U.S. housing recovery will help to cut losses on residential mortgage-backed securities mortgage pools in existing transactions but will lead to the inclusion of riskier loans in new transactions,” according to Moody’s.
“Future transactions will be weaker
because rising interest rates will reduce refinancing, as well as lead issuers to include more first-time homebuyers in RMBS and
But improved housing will improve existing borrowers’ loan-to-value ratios and “help lower losses on loans that have already defaulted or will default in the future,” according to Moody’s.
