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BORROWER PRESSURES WEIGH ON NA STRUCTURED FINANCE OUTLOOKS IN 2025

Mon 09 Dec, 2024 - 09:12 ET



Related Content: North America Structured Finance Outlook 2025

Fitch Ratings-New York/Paris-09 December 2024: Asset performance outlooks across
many North American structured finance sectors are deteriorating for 2025, with
higher-leveraged and lower-income borrowers particularly vulnerable to
affordability and refinancing challenges, Fitch Ratings says in a new report. A
cooling labor market is likely to offset some of the benefits of falling
interest rates.

CMBS asset performance will continue to diverge between older assets attracting
lower demand and in need of capital funding, and newer, more flexible and green
properties in prime locations. Tighter lending conditions and demand-side
pressures will also continue to hinder performance, as will a continued increase
in expenses, driven by rising insurance, labor and climate-related costs.

Our outlook for most RMBS subsectors is neutral, with the exception of non-prime
RMBS, with non-prime delinquencies forecast to increase to 3.25% in 2025, from
2.38% in October 2024. We expect affordability relief for those borrowers able
to refinance at lower rates, and high home prices will continue to support
borrower equity. ABS asset performance will be broadly stable in 2025, although
subprime borrowers remain vulnerable to cost of living stresses and higher debt
servicing costs.

Supportive market conditions over the last 12 months led to a high level of
refinancing and repricing by both loan and CLO issuers. The asset performance
outlook for CLOs is improving in 2025, with broadly syndicated loans leveraged
defaults expected to fall as investor confidence and falling interest rates
support market activity.

There is increased policy uncertainty with a Trump administration. Increased
tariffs may introduce inflationary pressures that slow the pace of rate cuts,
increasing the financial burden on households and businesses and leading to
higher delinquencies and defaults. Tax cuts may compensate for higher costs as a
result of tariffs.

Fitch’s ‘North America Structured Finance Outlook 2025’ is available at
www.fitchratings.com or by clicking the link above.

Contacts:

Will Rossiter
Director, Enhanced analytics – Structured Finance
+33 1 44 29 91 47
Fitch Ratings Ireland Limited
60 rue de Monceau
Paris 75008

Sarah Repucci
Senior Director, Credit Policy - Research
+1 212 908 0726
sarah.repucci@fitchratings.com






Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email:
elizabeth.fogerty@thefitchgroup.com



The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.


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Real Estate and Homebuilding
Structured Finance: ABS
Structured Finance: CMBS
Structured Finance: Structured Credit
Structured Finance
Aviation
Structured Finance: RMBS
North America
Canada
United States


RELATED REGIONS

 * United States
 * Canada





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