KBRA Releases Research – FHFA Closed-End Seconds: Effect on PLS?
May 08 2024 - 6:36AM
Business Wire
The Federal Housing Finance Agency (FHFA) on April 16 issued a
notice and a request for comment related to a proposal whereby
Freddie Mac could purchase single-family closed-end second (CES)
mortgages. This report explores the proposal’s potential overlap
with the existing second lien PLS market and the effects the
program may have on the size and risk profile of the PLS market
post-adoption.
- Approximately $8.7 billion have been collateralized via second
lien 2.0 PLS transactions through Q1 2024, a small but growing
portion of the PLS market.
- Assuming both GSEs were active in CES purchases, nearly 60% of
the CES originated and securitized in today’s PLS market might have
been eligible for the GSEs’ proposed program.
- Other conditions, however, that are not explicitly stated in
the proposal, may also have a bearing on KBRA’s estimate of the
overlap with PLS market, include appraisal type at origination, the
second lien’s documentation type, and the GSE’s pricing of this
product.
- The PLS market could end up with a larger share of CES with
more negative credit attributes and is likely to become more
concentrated with home equity line of credit (HELOC) products.
- In general, PLS markets have capably absorbed the current flow
of second lien securitization volumes, with spreads in line with
the remainder of RMBS 2.0. Loans have also exhibited stable
performance.
- The GSEs’ involvement in this sector could expand the market
via the creation of efficiencies and standardization similar to
those in other mortgage products currently offered by the
Agencies.
Click here to view the report.
Related Publications
- RMBS Trend Watch: Issuance Slowing; Second Liens on the
Way?
- RMBS Trend Watch: PLS Marches on, Leaving Some Buyers
Behind
- FHFA’s Credit Score Proposal and Its Impacts on RMBS
About KBRA
KBRA is a full-service credit rating agency registered in the
U.S., the EU, and the UK, and is designated to provide structured
finance ratings in Canada. KBRA’s ratings can be used by investors
for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1004227
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Armine Karajyan, Senior Director, RMBS +1 646-731-1210
armine.karajyan@kbra.com
Jack Kahan, Senior Managing Director, Head of Global RMBS +1
646-731-2486 jack.kahan@kbra.com
Ashish Sharda, Managing Director, RMBS +1 646-731-2415
ashish.sharda@kbra.com
Eric Thompson, SMD, Global Head of Structured Finance Ratings +1
646-731-2355 eric.thompson@kbra.com
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