Kroll Bond Rating Agency (KBRA) releases research examining the dynamism of the U.S. residential mortgage sector. The report summarizes the changing landscape of mortgage finance, noting the rise of nonbank mortgage companies, and reviews the various business activities connected to residential loan origination (or production) and servicing. The report also reviews key elements connected to servicing GNMA loans (e.g., FHA loans).
KBRA believes the nonbank residential mortgage sector has undergone considerable fundamental changes since the global financial crisis, resulting in more robust credit profiles based on greater revenue diversification and economies of scale, as well as prudential risk management practices. In our view, these factors, in combination, should serve to lower the occasionally significant earnings volatility that has been historically on display. That said, KBRA recognizes that the sector’s fortunes will remain closely tied to the path of interest rates, which are exceptionally challenging to predict. In addition, despite the prospect for more balanced capital structures, with somewhat less reliance on short-term and mark-to-market debt, the U.S. residential mortgage sector will continue to be largely funded with market-sensitive secured debt. As such, the sector will generally achieve a lower qualitative assessment vis-à-vis other financial sectors, such as deposit-funded commercial banks.
Click here to view the report.
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.
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