As the calendar ticks toward the end of 2014, it’s time to look ahead to what next year will hold for housing. Will the next 12 months see any legitimate movement on housing reform legislation? Are the issues with nonbank servicers over now? What's the next step for single-family rental bonds?
According to analysts from Wells Fargo (WFC), 2015 is going to be a year of change for housing, but the changes won’t be as seismic as you might think. Here are Wells Fargo’s seven predictions for housing in the new year.
1. There will be movement toward housing finance reform.
“With Republicans controlling both houses, we believe it is more likely that a housing reform bill might gain some traction in 2015,” Wells Fargo Analysts Greg Reiter, Mark Fontanilla, Randy Ahlgren, and Maria Mascia said in Wells Fargo’s Structured Products 2015 Outlook.
2. But significant changes to Fannie Mae and Freddie Mac are still years away.
“We continue to believe it would take at least five to seven years from the time a bill becomes law before any significant change to Fannie and Freddie would occur, given the complexity, the size of their footprints and the fragile nature of mortgage finance,” the analysts said. “Of course, only an act of law could restructure the GSEs, and it is extremely difficult to predict politics.”
3. No significant progress will be made toward a single-agency security, but there’s good news too.
In November, the Federal Housing Finance Agency, Fannie and Freddie announced that they had partnered together to continue the development of a new company, called Common Securitization Solutions, to develop a single GSE bond.
“These announcements signal that the GSEs are about to put more resources behind the CSS, which should mean accelerated development of more efficient GSE operations as well as a continuing elimination of idiosyncratic differences between Fannie and Freddie MBS, which should aid in improving the Gold/Fannie swaps,” the analysts said.
“In addition, some of the CSS’s new policies and procedures may be adopted by the private sector in the future, which could assist in the restart of the private-label securitization market.”
4. GSE risk sharing will expand in 2015.
“We expect 2015 GSE risk-sharing goals to be higher than the 2014 targets of $90 billion for each GSE, as year-to-date the GSEs have well over-exceeded their targets ($147.5 billion for Freddie and $222.2 billion for Fannie),” the analysts said. “In addition, the FHFA expects the scope and depth of risk-sharing transactions to continue to expand, which we read to mean additional STACR/CAS transactions.”
5. Issues involving nonbank servicers aren’t going away.
Ocwen Financial (OCN) has seen plenty of headlines lately, especially in the wake of its $150 million settlement with the New York Department of Financial Services over its servicing practices, but the Wells Fargo analysts said that the trouble with nonbanks isn’t over yet.
“Probes into the nonbank servicing sector highlighted the fact that the legacy space is highly exposed to nonbanks servicers,” the analysts said. “Nonbank servicing tactics are likely to be adjusted to address some of the concerns expressed by regulators, which could lead to increased modification activity and extended liquidation timelines which will likely result in severities remaining at elevated levels.”
6. Single-family rental bonds will grow and change.
In the past, securitizations based on income-producing rental homes have been brought to market by single borrowers, like American Homes 4 Rent or Invitation Homes, but that will change in 2015.
“In our opinion, 2015 will be a transitional year for single-family rental mortgage-backed securitizations,” the analysts said. “We think the asset class will evolve from being exclusively single-borrower transactions to including multi-borrower transactions to eventually being predominantly multi-borrower transactions.”
7. Interest rates will rise.
The Wells Fargo analysts expect interest rates to rise to between 4% and 4.75% in 2015.