Editor: David Reiss
Brooklyn Law School

January 10, 2013

S&P Is Optimistic That Residential Mortgage Market Is Rising From Bottom

By David Reiss

S&P’s Outlook Assumptions for the U.S. Residential Mortgage Market

support our view of loss projections on an archetypical mortgage loan pool (see description in section IV). The base-case loss projection of 0.5% for U.S. prime mortgage loan pools, incorporates our current outlook which reflects:

  • Standard & Poor’s current economic outlook, which factors slow growth over the next several years, declining unemployment rates, and a moderate increase in interest rates, as well as our cautiously optimistic view of housing fundamentals, based on price-to-rent and price-to-income ratios.
  • Our view that U.S. housing prices on a national level have seemed to have reached bottom. This view underlies our assumption that only a minor percentage of a prime RMBS pool is susceptible to a market value decline of up to 30% in select local markets experiencing a local economic downturn and accompanying distress sale discounts. (1)

S&P’s archetypal loan is “collateralized by a single-family detached primary residence with a loan-to-value ratio of 75%. For more information on the “archetypical” loan, see paragraph 24 in U.S. RMBS Criteria. Our projections for other types of newly originated products could be lower or higher depending on the characteristics of the loans, relative to the archetypical loan.” (2)

S&P notes that mortgage delinquencies have been flat and even declining.  This outlook may be one more crocus pushing through a frozen but thawing residential market.

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