MBS Issuers Mostly Optimistic

Modest increases in home prices and rents are generally expected over the next few years by debt issuers with housing market exposure

Despite expectations that are slower than the strong growth of the last several years, issuers are feeling confident about industry conditions.

That is according to the results of a survey of nearly 80 issuers conducted by Moody’s Investors Service ahead of its
Moody’s US Housing & Housing Finance Conference that takes place tomorrow.

The positive outlook comes even though the issuers of residential mortgage-backed securities expect
to face increasing competition. Rising competition potentially reflects expanding interest in finding opportunities as the market continues to reopen following the financial crisis.

The strong sentiment also is surprising since higher funding costs are expected as the Federal Reserve raises rates and long-term Treasury yields have been pushed up following the election.

“Perhaps surprisingly, considering the recent dramatic changes in the political landscape, issuers also generally view the current environment as offering strong visibility on future conditions and rank regulatory developments below other potential drivers of future conditions,” the report states. “Those views could signal an expectation that policy changes under the current administration and Congress will be limited and/or gradual, or that they will have only either minor impacts or effects that reinforce current trends.”

But Moody’s noted that some mortgage companies, which face the prospect of rising interest rates that challenge origination volumes, expressed pessimism.