Fitch sees 10% drop in home prices in 2011, negative outlook for MBS
Fitch Ratings expects another 10% decline in home prices in 2011, as the supply of distressed properties continues to weigh down the housing market. Accordingly, analysts maintained the agency's negative outlook for the residential mortgage-backed securities space and said 53% of all investment-grade RMBS rated by Fitch have a negative outlook. The number of downgrades will once again outpace upgrades in RMBS, but not as severely as the past few years, according to analysts. Fitch said the robo-signing debacle plaguing loan servicers, loan buyback pressures hitting mortgage lenders and a handful of other macroeconomic issues cause analysts to "remain cautious" regarding a sustainable stabilization for the market. "Key factors that will continue to weight on performance include negative equity for recent vintage collateral, lower loan modification volume, and slightly higher loss severities," analysts said. Fitch also said the market for commercial mortgage-backed securities should improve next year, as property market fundamentals have turned the corner. Still loan performance within the CMBS space will begin to diverge from the fundamentals next year because of asset-specific tenant rollover and high leverage, according to analysts. Analysts said vacancies have peaked in many of the largest metropolitan areas of the country while rents have reached bottom indicating some stabilization. But the lack of construction financing over the past three years skews those gains, meaning "it will be some time before income growth is seen." Write to Jason Philyaw.