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Standard & Poor’s ratings show importance of Fannie, Freddie in secondary market

By Gretchen Wegrich Updated on 12/21/2012

By Gretchen Wegrich

Standard & Poor’s Ratings Services revealed that the combined lending power of Fannie Mae and Freddie Mac totaled 70% of new mortgages during January-September 2012. The resulting available market liquidity was valuable during a period when there was very limited private capital available.

 Federal agencies are expected to hold their position at the top of the residential mortgage-backed securitizations market during 2013. In contrast, forecasts point to growth originating in a low base in the private label market.

In early December, S&P called for private label issuance to reach $15 billion during 2013. This figure has since been revised to $12 billion, a number that also includes deals with more seasoned collateral.

In spite of predicted growth, the private securities market continues to struggle against regulatory uncertainties, including rules as yet to be released by the Consumer Financial Protection Bureau. Expect the Qualified Mortgage and Qualified Residential Mortgage regulations to be revealed during the first quarter of 2013 and for these regulations to be key players in the mortgage-backed securitization market outlook.

 While powerful government-sponsored enterprise securities continue to support certain loans, the private market is somewhat weaker. While new issuance activity remained slow, several highlights were achieved during 2012 in the form of servicer and RMBS transactions.

Redwood Trust made waves in the private market, sealing six deals during 2012 and making the transition to 2013 with no signs of slowing its progress.

S&P predicted 2013 would see a diversified and expanding field of sponsors and originators engaging in new transactions throughout the New Year.  REO-to-Rental collateral behind 2013 securitizations also appeared poised for success.

S&P noted that activity was expected to be concentrated within a small number of larger aggregators possessing relevant management experience and economies of scale capable of taking advantage of the strategy.

This REO-to-rental securitization activity is only expected to continue as long as home prices remain low.

About The Author:
Gretchen Wegrich
Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.

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