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» VISIT US ONLINE @ DSNEWS.COM 53 FITCH PROJECTS POSITIVE ECONOMIC GROWTH IN 2015 Encouraging economic statistics are pushing United States housing toward more pronounced growth in 2015, according to the latest version of the "Chalk Line" released by Fitch Ratings on Tuesday. Fitch now projects single-family starts to improve 9.5 percent to 677,000 while multifamily volume will grow almost 12 percent to 343,000. Fitch still expects total starts for 2014 to exceed slightly more than one million. Fitch also projects new home sales to advance about 8 percent to 465,000 and existing home volume to decline 5 percent to 4.835 million, largely due to fewer distressed homes for sale. "Demographics, attractive affordability/hous- ing valuations, and a slow, steady easing in credit standards should sustain and ultimately accelerate the upturn," report says. "e latest economic and housing macro statistics are generally encouraging." e report speculates that the positive trends should sustain growth and lead towards an ac- celeration in early 2015 after a below-average start to 2014. However, "e spring selling season was un- derwhelming enough that this, along with more guarded expectations for the next few months, will lead to more modest growth for macro housing statistics before the year is through," said Fitch's managing director and lead homebuilding analyst, Robert Curran. e report continued, "Total housing starts are projected to expand 16 percent to 1.185 million as single-family starts advance 21 percent and multifamily volume gain 6.7 percent. New home sales should improve more than 20 percent, while existing home sales rise 5 percent." e analysts caution that there are still chal- lenges to overcome on the path to the projected growth. "Demand will continue to be affected by narrowing of affordability, diminished-but- persistent and widespread negative equity, chal- lenging mortgage-qualification standards and lot shortages," analysts say. "As Fitch has noted in the past, the recovery will likely remain fitful." FITCH: SLOW RMBS PREPAYMENTS LENGTHEN DEFAULT TERM RISK A new report from Fitch Ratings found that U.S. prime jumbo residential mortgage- backed securities (RMBS) issued since the start of 2010 are unlikely to see a "meaningful increase in prepayments, even if interest rates stay low." e company believes that the lack of prepayments will result in an increased average life of the mortgages in these trusts, further increasing the period of default risk. Although mortgage rates have recently declined, the average annualized prepayment rates for recent RMBS remained around 5 percent in May—down from 25 percent a year ago. "We expect the 2013 vintage to be one of the slowest prepaying vintages on record in U.S. RMBS as mortgage rates are unlikely to decline from the levels at which those mortgages were originated," Fitch said in a release. e slow prepayment behavior exhibited could expose the trust to a longer period of default risk from increased credit risk. However, Fitch commented the bonds in the recent vintage of RMBS are protected against default risk by the "unusually strong" initial credit profiles of the borrowers. For example, borrowers in the 2013 vintage benefited from more than 30-percent equity on average and are being helped by strong home price growth since the loan's origination. Fitch notes that if underwrit- ing loosens in the near term, the protection against this term risk could decline. "Global economic uncertainty has pushed mortgage rates down to the lowest level in six months for conforming loans and 12 months for jumbo loans. Rates overall have declined roughly 25 basis points in 2014 but remain almost a full point above their all-time lows from a year ago, providing limited refinance incentives for borrowers in recent RMBS," the company said. Borrower credit scores were steady in the Q2 2014, declining to 683—just two points—from Q1, according to HUD. KNOW THIS

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