Moody’s
data
show
that
higher-leverage
loans
—

jumbo
and
conventional
mortgages
with
debt-to-income
ratios
of
43.1%
or
higher
—
now
account
for
nearly
40%
of
new
originations,
up
from
about
20%
in
2021.

RMBS
investors
closely
track

delinquency
rates
—
which
are
expected
to
increase
due
to
a
weaker
jobs
market
—
along
with
prepayment
trends,
when
assessing
risk. 

Amid
declining
rates
and
renewed

refinancing
opportunities,
overall
prepayments
are
expected
to
“climb
slightly,”
the
analysts
said.

Recent
vintage
originations
are
more
sensitive
to
even
modest
rate
declines,
while
seasoned
vintages
—
where
most
outstanding
loans
carry
coupon
rates
below
5%
—
are
expected
to
remain
slow
to
prepay,
they
added. 

Moody’s
expects
national
home
prices
to
be
“flat
to
slightly
down”
over
the
next
few
years,
following
the
post-2019
price
boom
that
left
many
homeowners
with

significant
equity.
That
equity
buffer
limits
risk
for
pre-2022
RMBS.

“Low
equity
in
newer
loans
is
mainly
concentrated
in
certain
GSE
and
government-insured
mortgages,
with
small
shares
of
greater-than-80%
LTVs
in
prime
RMBS,”
the
analysts
said. 

The
analysts
also
expect

mortgage
rates
to
hover
around
current
levels,
or
slightly
below
them,
in
the
near
term.

Privatization
talks,
new
credit
scores

On
government-sponsored
enterprise
credit
risk
transfer
(CRT)
deals,
Moody’s
said
collateral
quality
and
transaction
structures
remain
strong.

Borrower
credit
scores
remain
elevated,
with

Fannie
Mae’s
first-quarter
2025
loan
acquisitions
averaging
762,
compared
with
a
long-term
average
of
752
dating
back
to
1999.

But
Moody’s
cautioned
that
potential

GSE
privatization
could
weaken
the
credit
quality
of
some
CRT
tranches
by
reducing
the
strength
of
interest
backstops
and
altering
deal
structures.

“Meanwhile,
the
planned

introduction
of
the
use
of

VantageScores
and
new

FICOs
will
also
potentially
affect
collateral
quality,
given
such
use
is
untested,”
the
analysts
said. 

According
to
them,
only
limited

historical
data
is
available
for
comparison,
particularly
from
the
global
financial
crisis
period.
The
option
to
choose
between
scores
could
also
increase
the
risk
of
lenders
selectively
using
the
most
favorable
score
to
boost
originations.

Investors
should
also
expect
a
higher
share
of
adjustable-rate
mortgages
(ARMs)
in
new
prime
RMBS
pools,
increasing
the
potential
of
payment-shock
risk. 

Moody’s,
however,
also
noted
that
ARM
underwriting
standards
today
typically
account
for
future
payment
adjustments
—
a
key
credit-positive
difference
from
pre-2009
practices.
Similarly,
for
temporary

interest
rate
buydowns
offered
by
homebuilders,
the
loans
are
“typically
underwritten
to
full
payments.”

The
non-QM
space

Moody’s
also
flagged
signs
of
easing
underwriting
standards
in
the
non-qualified
mortgage
(non-QM)
sector,
along
with
some
deterioration
in
pool
quality.
In
some
transactions,
collateral
includes
second-lien
loans,
while
underwriting
guidelines
have
softened
in
others.

For
example,
some
lenders
now
allow
investors
in
debt-service-coverage
ratio
(DSCR)
loans 
to
use
the
properties’
full
existing
lease
amounts
without
a
cap
on
the
difference
from
market
rents,
increasing
risk
if
market
rents
decline.

Others
lenders
have
reduced
or
eliminated
requirements
to
source
large
deposits
used
for
DSCR
reserve
accounts,
further
weakening
credit
protections.