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Dress code Insider Trading Investors seeking insight into the mortgage-backed securities' markets are gaining access to the inside track with forward-looking analysis from Smith Breeden; find out why—and when—both the residential and commercial sectors could surprise in 2013. Residential Mortgage-Backed Securities Commercial Mortgage-Backed Securities Today's Trends: Today's Trends: With investors observing an estimated $3.5 billion in new issue non-agency RMBS backed by newly originated loans in 2012, Smith Breeden stated that "despite the fiscal uncertainty and accompanying weakness in equities, non-agency RMBS closed the year with a moderate rally in prices." Smith Breeden pointed to continued upticks in pricing for commercial real estate. Additionally, the company elaborated on findings from December 2012 that revealed a "rally" for CMBS, following the "brief pause" observed last November. What's Ahead: What's Ahead: The company's findings herald a rise in new issue non-agency RMBS backed by newly originated loans, but Smith Breeden cautioned that numbers will expand "less than widely expected." Stating that totals "could grow to $8 to $10 billion in 2013," the company noted that many Wall Street analysts had previously predicted improvements of "$20 to $30 billion." Additionally, Smith Breeden is projecting "tighter" spreads for RMBS by the end of 2013, though the company pointed out "spreads may weave through rocky terrain" along the way due to uncertainty derived from the nation's ongoing fiscal issues and the European debt crisis. Facts and Figures: »» Primary mortgage rates were near all-time lows to start 2013. »» Prepayment rates remained elevated to start the year and seem on track to continue that trajectory near-term. »» "Specified pools and mortgage derivatives backed by collateral that will prepay slower than generic borrowers" represent the most lucrative opportunities in the broader MBS sector. »» Juxtaposing RMBS to "other public fixed income sectors" the market "offers superior loss-adjusted yields and will continue to attract additional capital from existing investors and new entrants." Citing the Federal Reserve's "financial repression," the company labeled commercial real estate an "attractive" sector in 2013. "In the coming year, we expect delinquencies to continue their decline from the peak in the summer of 2012 . . . . We do not expect to see a large number of bubble year loans maturing this year. As the economy continues to improve, delinquencies will moderate," Smith Breeden elaborated. Commenting on new issue CMBS, the company called for issuance to rise, stating that "estimates for 2013 fall in the $50 billion range." Facts and Figures: »» Following the "shutdown" seen in 2008, the new issue CMBS market has displayed gradual increases. »» Between 2011 and 2012, new conduit deals rose from $24.7 billion to $34.5 billion. »» As the "volume of maturing and liquidated loans outpaced new bonds coming to market, net issuance has dropped accordingly, and the trend is expected to continue. Real Estate Markets Today's Trends: Looking back at 2012, Smith Breeden found that U.S. housing showed sustainable progress in spite of economic weakness and looming fiscal concerns. Examining the nation's supply of so-called shadow inventory, the company's analysts observed improvements. What's Ahead: "The U.S. housing market will continue to rebound during the year . . . . Nationwide, we forecast home prices will increase 1.8 percent (using FHFA's index)," stated Smith Breeden analyst Jeffrey Wheeler, CFA. Commenting on the country's delinquency rate, Wheeler went on to note "transition rates of delinquent loans from foreclosure to REO will finally start to increase after dropping for years." Facts and Figures: »» Transition rates for moving properties from foreclosure to REO are projected to rise to 3 to 4 percent per month off of 2012's 2 percent pace. »» Stating that current forecasts display "some upside risk," Smith Breeden stated the "shadow inventory of vacant homes (and the pent-up supply from nondistressed but price-sensitive homeowners) should prevent a V-shaped bounce" in the housing market. »» Citing adjustments to "modest fiscal headwinds and . . . another round of domestic fiscal negotiations," Smith Breeden pointed out the "potential for market volatility." $34,500,000,000 New conduit deals between 2011 and 2012 Tool Time Need to bolster your analytics arsenal? CoreLogic has rolled out a new program for evaluating and tracking non-agency RMBS. I rvine, California-based CoreLogic announced the availability of CoreLogic Bond Tracker, a new bond assessment service for non-agency residential mortgage-backed securities (RMBS). CoreLogic's Bond Tracker provides credit assessments of nonagency RMBS across product type, vintage, and tranche position, with credit grades in descending order from AAA through D. The tracker can incorporate the position at which the bond or tranche was purchased or marked when evaluating the likelihood of investment loss. In addition, the tracker refreshes dynamically to reflect factors affecting credit performance, incorporating impacts based on the CoreLogic HPI suite of real estate analytics. "Today, investors are looking for greater transparency into the quality and risks of the collateral backing non-agency bonds, and issuers are looking for new ways to rebuild investor confidence. We believe CoreLogic Bond Tracker will appeal to both groups," said Ben Graboske, SVP of real estate and financial services for CoreLogic. "We've designed CoreLogic Bond Tracker to utilize our data and risk tools to provide information and surveillance that is objective and data based to augment what is currently available." In closing, the company reiterated that it is not registered as a nationally recognized statistical ratings organization (NRSRO), and as such, CoreLogic Bond Tracker does not constitute an NRSRO rating. The M Report | 19