The latest signals from Federal Reserve officials point to a year in which there's limited mortgage rate relief, which means activity residential lenders engage in to generate funding will likely diversify.
"It's probably the case that rates are going to come in a little bit, but probably not precipitously," said Chris Gavin, co-chair of the structured finance, residential mortgage and securitization practices at Winston & Strawn.
Some new traditional mortgage activity could emerge as borrowers get tired of waiting for a large rate drop, but some of
Borrowers also may need to obtain out of the box products to take advantage of high home-equity or access new inventory as it comes online.
"I think there'll be a reduction in the properties that don't have any debt or that are owned by senior citizens," Gavin said.
Inventory coming online from the older adult owners could include properties in need of renovation, fueling a fix-and-flip market in which there have been a growing number of rated securitizations.
Home equity loans and lines of credit also are poised for expanded use, particularly the latter. While HELOCs can be more complex to securitize, the initial-draw structures many now have allow lenders to pay commissions to originators on the lines, making them easier to aggregate.
"I believe the HELOC markets are going to continue to grow," said JB Long, president of Incenter Capital Advisors.
Investor appetite for various types of nontraditional mortgages has been getting stronger, according to Dillon Vestal, a managing director at Rocktop Technologies.
"Because they have a higher yield, we've seen some appetite from investors stepping out to try and go after those asset classes," Vestal said.
In addition to opportunities like this, there will likely be some risks and challenges in the capital markets next year.
"There'll be a lot of focus on
Basel III capital reform constraints on certain assets, the need for banks to do something about remaining duration risk from asset-liability mismatches or distressed commercial real estate on their books, and long warehouse financing periods for jumbo mortgages are other potential challenges.
That said, the general outlook for the availability of
"The banks have been pretty steadfast in their lending," he said, noting that larger players will likely remain constant.
While there's been some concerns from smaller nonbank issuers about meeting Ginnie Mae's new risk-based capital standard at yearend, Long said it could be a factor that makes depositories more comfortable funding government product pipelines for nonbanks.
"I think that mitigates risk for Ginnie Mae, and I think it also mitigates risk for the warehouse lender," he said.
