The Financial Service Authority’s proposals in its Mortgage Market Review could leave many borrow- ers unable to remortgage due to stringent affordability and income verification tests, says Moody’s.
The ratings agency expects to see higher defaults and possible losses in the sub-prime market if the regulator’s proposals are implemented.
Moody’s says it is particularly concerned about borrowers in negative equity or with adverse credit, and those who have self-cert or interest-only loans.It believes these borrowers will be unable to refinance if they can’t pass the stringent tests proposed.
In a report on the subject Moody’s states: “When interest rates start to increase and borrowers’ capacity to make mortgage payments becomes endangered, their inability to remortgage could lead to rising arrears levels, higher defaults and an increase in back-end losses in non-conforming securitisations.”
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Monday, December 28, 2009
Tuesday, December 15, 2009
MMR could stifle remortgage market, says Moody’s
Moody’s believes these borrowers will be unable to refinance if they cannot pass the more stringent affordability and income verification tests proposed.
It says: “As a result, when interest rates start to increase and borrowers’ capacity to make their existing mortgage payments becomes endangered, their inability to remortgage could potentially lead to an increase in arrears levels, higher defaults and an increase in back-ended losses in non-conforming securitisations.”
Moody’s believes the proposals will have less of an impact on the prime market than on the non-conforming market, as the majority of non-income verified lending in this segment is through the fast-track product, where the borrower is not requesting a self-certified product.
Additionally, although the refinancing market has tightened for prime borrowers, it is not as challenging as the non-conforming market.
From a credit perspective, Moody’s is of the view that, once adopted, these proposals should benefit new UK RMBS securitisations as well as master trusts with revolving pools, as theincome verification processes and stressed affordability tests will be more conservative for the mortgage loans included in the transactions.
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It says: “As a result, when interest rates start to increase and borrowers’ capacity to make their existing mortgage payments becomes endangered, their inability to remortgage could potentially lead to an increase in arrears levels, higher defaults and an increase in back-ended losses in non-conforming securitisations.”
Moody’s believes the proposals will have less of an impact on the prime market than on the non-conforming market, as the majority of non-income verified lending in this segment is through the fast-track product, where the borrower is not requesting a self-certified product.
Additionally, although the refinancing market has tightened for prime borrowers, it is not as challenging as the non-conforming market.
From a credit perspective, Moody’s is of the view that, once adopted, these proposals should benefit new UK RMBS securitisations as well as master trusts with revolving pools, as theincome verification processes and stressed affordability tests will be more conservative for the mortgage loans included in the transactions.
Source
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