MReport January 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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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 The RMBS Market 2018 Outlook: Know the Risks A new report shows these loans are continuing to diversify the RMBS market, as well as their risks. M oody's Investors Service released its residential mortgage- backed securities (RMBS) 2018 Outlook, recently showing projections for the RMBS market in the year to come. The report summarizes how lenders will issue several different types of loans and deals, particularly regarding issuances of new deal types. The report also covers the collat - eral quality of prime jumbo deals, re-performing/nonperforming loans (RPL and NPL), nonprime RMBS, and the credit quality of single- family rental (SFR) transactions. As performance remains steady amid strong housing and mac - roeconomic fundamentals, 2018 issuance will include new deals from issuers backed by a wider array of assets. RPLs and NPLs will diversify more as transactions include more types of loans and issuance volume remains high. While the RMBS market will remain stable, it's worth mention - ing that new performance risks will emerge, mainly regarding RPL/NPL transactions. This will be due to the variation of servicing practices and collateral composi - tion these loans carry. According to the Moody's analysis, deals "backed by large percentages of modified loans with looming interest rate step-ups, weak payment histories at issuance, and/ or serviced with weaker loss mitiga - tion practices will be at higher risk of an increase in delinquencies." SFR transaction credit qual- ity will continue to improve on issuers' operational efficiencies, but issuance will remain low due to consolidation and emergence of alternative forms of financing. SFRs' strong credit performance will continue thanks to stable va - cancy rates and strong rental demand driving rents higher across the coun- try. Prime jumbo deals' collateral qual- ity, as well as GSE credit risk transfers will weaken somewhat as lenders intend to ease credit standards. Regarding servicing, errors should remain low as controls are installed to address regulatory changes. The changes put forth by the Consumer Financial Protection Bureau (CFPB) should drive servicing quality up; however, costs for building compli - ance departments will remain high. Modification levels will continuing decreasing and small- to mid-sized servicers will continue to play a ma - jor role in the RMBS marketplace. Fannie Mae Offers $10M to Solve Affordability Issues The GSE recently launched its Sustainable Communities Innovation Challenge. F annie Mae is offering $10 million for solutions to the country's affordable hous- ing issues. The Govern- ment-Sponsored Enterprise (GSE) issued its Sustainable Communities Innovation Challenge in December. As part of the challenge, Fannie Mae is requesting propos - als from the public, private, and nonprofit sectors for "promising ideas that will help it address the nation's affordable housing issues," the GSE reported. According to Jeffrey Hayward, EVP and Head of Multifamily at Fannie Mae, the challenge is part of the GSE's overall mission to serve the American consumer. "The challenge is a responsible way for Fannie Mae to uncover and explore innovative solutions to help address the affordable housing crisis in America," Hayward said. "It supports our broad mission to increase housing opportunities across the country that are safe, sustainable, and affordable. We are excited to collaborate with new partners to source innovative ideas from other sectors." There will be three parts to the challenge. The first will focus on the research, design, and develop - ment of solutions; proposals will be accepted through February 23, 2018. Specifically, Fannie is looking for ideas that "expand access to afford - able housing in sustainable com- munities where strong employment opportunities are typically accom- panied by high housing costs and improve access to quality employ- ment opportunities for residents of existing affordable housing, while making sure housing is affordable to more people." The challenge is just one part of Fannie's overall Sustainable Communities Partnership and Innovation Initiative, which aims to develop "safe, stable, and thriv - ing communities that provide residents with integrated access to quality affordable housing and op- portunities for employment, health and wellness, and education." According to Marie Evans, VP of the Sustainable Communities Partnership and Innovation Initiative, the challenge is de - signed to tap resources across sectors and industries. "Housing is inextricably linked to the broader community," Evans said. "Accordingly, we recognize that in order to affect systemic change, affordable housing must be approached holistically by fo - cusing on where it intersects with key components of a sustainable community. With the challenge, we are looking for new concepts, de - signs, and ways of solving our nation's affordable housing issues from innovators who are working inside and outside of the tradi - tional housing industry. Great ideas can come from anywhere."

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