S&P says the current AA+ rating enjoyed by the GSEs is a function of their government support. Because of their capital shortfalls, both GSEs have a B- standalone credit profile rating.
Treasury Secretary Bessent’s cautious remarks about the prospect for GSE reform heighten industry skepticism about the release of Fannie Mae and Freddie Mac from conservatorship.
Obstacles like how to deal with the implicit guarantee and excessively high capital requirements make it unlikely that the GSEs will exit conservatorship under Trump, though the chances are higher than before his election.
The debate over how to end the conservatorships of Fannie Mae and Freddie Mac hinges on whether rating services would downgrade the GSEs if they exit without an explicit government guarantee.
Critics argue that, if Fannie Mae and Freddie Mac are released from conservatorship without an explicit government guarantee, MBS investors will demand wider spreads to cover the added credit risk.
Residential MBS transactions will likely experience a spike in delinquencies, but performance will return to pre-storm levels within a year, according to Moody’s.
Fitch Ratings sees relatively smooth sailing for residential MBS this year while times are tough in the CMBS market, and the worst could be yet to come.
It will be the 11th issuance of its type by loanDepot.
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