Structured Credit

October 20, 2021

Large investors will have an edge as RMBS loan volumes pick up

The rebound in the real estate market following the worst of the covid-19 pandemic has led to a brighter outlook for investors in residential mortgage-backed securities (RMBS) going into the fourth quarter.

Pretium’s Kong says she is most bullish on the fundamentals of sub-performing and non-performing residential loans.

“Most borrowers’ equity position is in a much better place today, therefore there is more potential to work with them to restructure their debt so they can re-perform and stay in their home,” Kong says.

“Housing demand will continue to support and enhance today’s equity positions, which will benefit borrowers in the future and also bodes well for both residential loan purchasers and RMBS investors.”

Kong says that available capacity to complete any third-party scope of work or service has been greatly impacted by the pandemic. Organisations that have internal platforms that can bypass these capacity constrains will have a competitive advantage, she adds.

Record sales volume of loans underlying RMBS is expected to continue in the fourth quarter amid increased demand.

“Asset managers that have the ecosystem and ability to execute restructuring strategies will continue to be the most competitive and successful in this sector,” says Kong. “In addition, I expect the higher supply in the loan markets will also drive an increase in securitisation issuance.”

US 10-year treasury rates line graph 2021
Although not as sharp as the rise in February, US 10-year treasuries climbed steeply in late September from 1.32% on 22 September to 1.55% by month end

Sarah Kong

Managing Director, Pretium


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