Yield Curve Flattening Could Be Good for Mortgage Market: Fitch

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A flattening of the yield curve could spell good news for the mortgage market, according to Fitch Ratings.

If the Federal Reserve's expected rate hikes are offset by accommodative monetary policy elsewhere, then investors will be on the hunt for yield, Fitch said. That could give banks an incentive to securitize their nonagency mortgages to offset higher rates.

That would reverse the trend of banks currently holding nonagency mortgages on their balance sheets. But if the margin narrows, it would make holding the mortgages less profitable. Banks would then look to generate earnings by focusing on turnover and fees, Fitch said. That would lead to the securitization of nonagency mortgages.

Additionally, Fitch expects single-family home prices to reach historically high levels by the end of this year.

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Originations Securitization Secondary market