Fannie Mae and Freddie Mac, combined, guaranteed roughly 70% of new mortgages through the first nine months of the year, effectively providing market liquidity at a time when private capital was limited, according to Standard & Poor’s Rating Services.
"Their financial results have improved because new loan-loss provisions have declined, in line with their falling delinquencies, but potential losses within their single-family guarantee portfolios remain substantial," S&P said.
While federal agencies will continue to dominate the residential mortgage-backed securitizations market in 2013, the private-label market is expected to experience growth from a low base.
Earlier this month, S&P predicted total private-label issuance to increase to $15 billion next year. The rating agency is now projecting $12 billion issuance in the new year, including deals with seasoned collateral.
However, the private securitization market is still facing challenges, especially from regulatory uncertainties such as the Qualified Mortgage and Qualified Residential Mortgage rules scheduled to be released by the Consumer Financial Protection Bureau in early 2013.
Simply put, all loans wrapped in government-sponsored enterprise securities receive both QM an QRM status as long as the GSEs operate under government control. It's the private market that could use some guidance.
Although new issuance activity was still modest by historical standards, there were highlights made throughout the year as a result of servicer transactions and the issuance of six separate RMBS transactions.
Redwood Trust (RWT) was a key player. The real estate investment trust sealed its sixth deal of the year on Nov 30 and has already announced its first deal in 2013 with Barclays (BCS) on Jan. 15. It has set a goal to issue about once a month for the new year.
Going into the new year, an increasing number of diverse sponsors and originators are expected to become involved in new issue transactions, S&P stated.
Additionally, REO-to-rental collateral backing 2013 securitizations look positive.
"We expect that such activity will be concentrated with only a limited number of large aggregators with relevant management experience and economies of scale having the capacity to take advantage of the strategy," the report said.
However, the time frame for REO-to-rental securitization activity is limited due to distressed home prices that are expected to rebound.