The upcoming year is expected to bring continuing improvements in the market for residential mortgage-backed securities (RMBS), according to one forecast.
In its predictions for 2015, Moody's says stronger underwriting standards, third-party reviews, and the implementation of risk retention rules will all bolster the credit quality of new private-label RMBS.
"New regulations setting strict standards for origination of qualified mortgages along with ability-to-repay rules will drive the strong credit quality of new issuance," said Navneet Agarwhal, managing director at Moody's.
Agarwhal added that even non-qualified mortgages are likely to see an improvement in credit quality "because they need to comply with ability-to-repay rules as well."
Moody's also expects private-label RMBS issuance will rise slowly over the next year, slightly exceeding 2014 levels. While the collateral backing these securities will likely have weaker credit characteristics, regulatory guidelines are expected to help boost the credit quality of those pools, as well.
Legacy private-label securities are also anticipated to perform better as economic improvements bring down delinquencies. However, loss severities for seriously delinquent loans will continue to increase, Moody's predicts.