Securitization in Focus — February 2025

Asset-backed Securities

The Asset-Backed Securities (ABS) industry gathered at SFVegas to review market dynamics, evaluate risks and explore emerging trends. Here's a snapshot of the most compelling insights:

Positive Sentiment Amid Tight Spreads

Investor optimism persists despite narrow credit spreads in the ABS market. ABS remains attractive compared to Treasuries and corporate debt.

Hesitation Toward Higher Risk Assets

While the sector offers relative value, some investors show hesitation to commit to riskier ABS tied to newer or less-established asset classes.

Focus on Fundamentals

Issuers emphasized the importance of strong underwriting and servicing practices, citing solid consumer credit and ABS fundamentals as a stabilizing factor.

Top Risk Concerns – Federal Policy

Discussions highlighted federal policy uncertainties, including potential risks posed tariffs and monetary policy changes, but most participants are taking a “wait-and-see” stance on these evolving factors.

Household Debt Insights Post-COVID

Since January 2020, average credit card utilization has climbed by 3%, with balances rising 10% by October 2024. However, thanks to concurrent income growth, the household debt-to-income ratio remains stable at 11.5% — low by historical standards.

The new issue market took its customary pause during the SFVegas conference. YTD issuance stands at $60.7B across 74 transactions, representing a slight 3.2% decline compared to the same period last year. While activity has slowed in key sectors such as auto, credit, education and equipment, the diverse "Other" category — primarily driven by aircraft and fiber transactions — provided some balance to the overall decline.

ABS Issuance

Commercial Mortgage-backed Securities

CMBS Issuance ($B)

CMBS issuance is maintaining a strong momentum in 2025, setting a record pace for the year. YTD private label CMBS supply has reached $32B, aligning closely with 2022 levels for the same period. Single-Asset Single-Borrower (SASB) deals remain the dominant driver, with the Office sector accounting for approximately 35% of total issuance.

Spotlight on DOGE

The Department of Government Efficiency (DOGE) is actively pursuing cost-saving measures across the Federal Government, with a particular focus on office leasing. Does this represent a risk to CMBS deals?

• The General Services Administration (GSA) holds leases for nearly 18 million square feet set to expire in 2025, along with an additional 5 million square feet subject to early termination rights.
• The CMBS market has limited exposure to GSA-leased office buildings, with approximately $5.2B in office loans tied to properties housing a federal government tenant — representing roughly 3% of the overall Office CMBS market.
• GSA lease expirations and early termination impacts on CMBS deals total only 589,000 square feet, rising to 828,000 square feet when including early termination rights.

Exposure by CMBS type (%)

Delinquency Rates

• CMBS delinquency rate decreased to 6.30% from 6.56% in January
• Overall CMBS delinquency rate is up 1.59% on a year over year basis
• 91.83% of loans are current, 6.30% are more than 30-days delinquent:

Residential Mortgage-backed Securities

2025 issuance in private label RMBS is +19% compared to the same time period last year.

RMBS Issuance ($B)

Key
Non-QM: Non-qualified mortgages
CAS/STACR: Connecticut Avenue Securities/Structured Agency Credit Risk
RPL/NPL: Re-performing loans/Non-performing loans

Census Bureau 4Q24 update

Homeowner Demographics

Under 35 households at a three-year low, down 0.7% to 36.3%

Age 35-44 households down 0.9%

Some seasonality as homeownership rates among under 35 and 35-44 households have fallen 7 out of 10 years during the fourth quarter and 11 out of the past 15 years

4Q24 Vacancies (%)

Approximately 89.8% of housing units in the US were occupied and 10.2% were vacant