KBRA releases its 2025 RMBS Sector Outlook, which provides market and performance themes as of year-to-date (YTD) 2024, as well as issuance volume trends and forecasts for 2025, collateral performance trends, and rating surveillance outcomes. In addition, we cover the RMBS 2.0 spread environment at pricing as well as other themes to watch in 2025.

Some key takeaways from the report include the following:

• Current and Expected RMBS 2.0 Issuance: Expectations for full-year (FY) 2025 are at $107 billion overall (up 12% YoY), with non-prime at approximately $44 billion (up 8% YoY), prime at $39 billion (up 14% YoY), and credit risk transfer (CRT) at $9 billion (up 10% YoY). FY 2024 is expected to close at just under $96 billion, up 75% YoY overall, with non-prime at approximately $40 billion (up 31% YoY), prime at $34 billion (tripled YoY), and CRT at $8.4 billion (down 3% YoY).
• RMBS 2.0 Spreads: Despite potential short-term disruptions from a change in U.S. administration, we believe the strong momentum from year-end 2024—with spreads tightened across the board at multiyear lows—will likely drive a market rebound and enhance spread stabilization as we approach mid-2025.
• RMBS 2.0 Performance Trends: Robust fundamentals are expected to uphold mortgage performance through 2025, with only minor credit softening anticipated, primarily in the non-prime segment. Non-prime transactions have exhibited performance degradation on the back of inflationary pressures. Although we expect further degradation to occur if inflation and/or unemployment increases, we do not anticipate meaningful losses to materialize. The overall RMBS 2.0 credit performance has shown relatively stable indicators YTD 2024, with mortgage delinquencies remaining somewhat low overall (under 1% for prime YTD). Serious delinquencies (90+ days past due) remained steady throughout the year, except for the non-prime segment (2.9% as of October 2024). A broad-based increase in conditional prepayment rates (CPR) has recently emerged as mortgage rates have fallen from their peak, with prime prepayment rates reaching 6.1% and non-prime at 11.5% as of October 2024.
• Surveillance Activity: As of October 31, 2024, KBRA conducted surveillance reviews of 491 transactions that resulted in 9,946 affirmations, 1,176 upgrades, and no downgrades. We expect 2025 surveillance activity to remain stable with minimal downward rating migration.

Click here to view the report.

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.

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