KBRA Releases Research – Under the Macroscope: U.S. RMBS Credit Sensitivity Analysis

KBRA releases research that examines the potential impacts of RMBS sector headwinds due to changing economic and market conditions including home price fluctuations, interest rate increases, and inflation rate changes accompanied borrower residual income contraction. KBRA conducted several hypothetical scenario-based analyses to determine the potential impact of these factors on the credit attributes of RMBS transactions in its rated universe, specifically:

• KBRA applied discrete home price decline stresses to transactions, to discern their potential impact on CLTV ratios.
• The potential impact of the current, higher rate indices on adjustable-rate mortgages (ARMs) and ARM loans with initial fixed rate terms (hybrid ARMs) were examined.
• KBRA sought to determine the impact on DTI ratios resulting from reductions in borrower real income due to inflation effects.

Report Highlights

• The high loan-to-value (LTV) credit risk transfer (CRT) and non-prime RMBS 2.0 sectors were the most sensitive to the study’s potential national home prices decline scenario stresses. Notably, stressed CLTVs of 90% and higher represented below 2% of transactions among these two sectors in the 5% national decline scenario. In a 10% national decline scenario, stressed CLTVs remained below 80% for almost 90% of outstanding RMBS 2.0 collateral.
• Across KBRA’s RMBS 2.0 portfolio, ARM loans total less than 1% by current collateral unpaid balance (UPB) but increases to 15.6% in non-prime and 16.6% in non-prime INV. Non-prime INV transactions respond most meaningfully to interest rate sensitivity scenarios with a portion of loans subject to meaningful payment shock prior to 2025.
• Reductions in residual income stresses due to real wage declines could be most impactful for prime INV transactions with approximately 9% of loans would see DTI ratios increase above 50% with a 5% reduction in income.

Click here to view the report.

Related Publications

• RMBS Credit Indices
• RMBS Trend Watch: Issuance Slowing; Second Liens on the Way?
• CDFIs and the Return of the ‘No-Doc’ Loan
• Will Hard Times for Mortgage Originators Hamper RMBS Performance?

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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