TheMReport

62 | TH E M R EP O RT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Three Trends That Will Shape the Mortgage Market Here's how changing regulations and a housing trend are likely to define the market. T he government-spon- sored enterprises' (GSEs) move towards single se- curity, the Federal Hous- ing Administration's (FHA) credit box changes, and the low supply of homes available for sale are three trends that will likely shape the mortgage market in 2019 and beyond, according to the Urban Institute's Monthly Chartbook. While the nonagency share of mortgage securitizations has increased gradually over the years, from 1.8% in 2016 to 4.4% in 2018, it has seen an uptick since February 2019, inching upwards to 7.15%, the report revealed. Nonagency securi - tization volume totaled $95.2 billion for 2018, a 41% increase over 2017. The Federal Housing Finance Agency recently issued the final rule on its move toward a single security, which is likely to have a far-reaching impact on the mort - gage market in 2019 and beyond, the report indicated. This initiative will unify Fannie Mae and Freddie Mac's cur- rently separate mortgage-backed securities (MBS) into a single, co-mingled security, called uni- fied mortgage-backed securities (UMBS). The final rule requires the GSEs to align their policies, programs, and practices that can impact cash-flows to holders of to- be-announced TBA-eligible MBS. "The market had anticipated these actions, and the price dif - ferential between Fannie and Freddie securities had converged some time ago; prior to discus- sions on the UMBS, Freddie Mac needed to subsidize its security to the detriment of taxpayers," the report stated. How these UMBS, which go live on June 3, will shape the MBS market. The Chartbook also indicated that the volume of Alt-A and subprime securitization showed the largest growth within the private label securitization (PLS) market with subprime securitiza - tions more than doubling and Alt-A securitizations more than quadrupling from 2017 to 2018. This indicated a distinct "change in the mix" of PLS, the report indicated. The second factor that is likely to impact borrowers and lenders is the FHA's changes to its credit box. The recent announcement is aimed at mitigating FHA's con - cerns about endorsing mortgages with higher risk characteristics. One of the key changes an- nounced by the FHA is to refer certain higher-risk mortgages for manual underwriting, which is more labor intensive and costly for lenders. According to the report, while it is too early to tell whether this will discourage lend - ers from originating the affected mortgages and to what degree, the Urban Institute will be "monitor- ing the credit characteristics of new FHA originations to identify the impact of this change to credit availability." Finally, even as the first lien origination volume for the full year of 2018 finished at $1.63 tril - lion, down from $1.81 trillion in 2017, a recent pullback in rates, the start of the homebuying season, and a continued strong economy are likely to spur increased de - mand for homes again. However, the report indicated that hous- ing supply has been trending downward throughout 2018, and though it increased month-over- month in February, inventory was still lower than in previous years. It, therefore, remains to be seen "whether months' supply will continue its downward trend in 2019" and how that would impact the demand for homes.

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