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Fitch: Home prices cushioning recent U.S. RMBS from future stress

LTVs continue improving as delinquency risk falls

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Fitch Ratings reports that though U.S. home price growth has slowed markedly, the overall strong growth since 2012 is helping recent vintage U.S. prime RMBS borrowers by providing a cushion against unexpected economic stress.

“Home price increases are slowing and some regions may still be vulnerable to a correction, but most recent vintage RMBS borrowers will still be left with more equity than they had at origination even if home prices fall 10%,” said Fitch managing director Grant Bailey in Fitch’s latest monthly prime jumbo trends report.

The weighted average combined loan-to-values have improved for deals originated between 2011-2013 are:

  • 2011: to 50% from 64%
  • 2012: to 55% from 68%
  • 2013: to 59% from 68%

This comes even as home price growth continues to slow.

When weighted by the geographic concentration in prime RMBS pools, home prices increased at an annualized rate close to 5% in first quarter-2014, down from double-digit increases last year.

The improvement in equity positions to date combined with the strong initial credit profile of the prime borrowers is reflected in the low delinquency rates.  As of the most recent month's data, only 13 basis points of outstanding prime RMBS borrowers were delinquent.

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