Ongoing shifts in U.S. policy are introducing uncertainty for the securitized mortgage market, according to Fitch. While the scope of impact remains to be seen, the changes are already reverberating. 

“Policy shifts in the United States are driving increased uncertainty about asset performance across some structured finance sectors,” the rating agency said in a recent report.

Indications that the large government position in real-estate finance markets could shrink and tariffs that could alter the cost of building materials are among the concerns that make residential and commercial mortgage-backed securities tough to size up, Fitch noted.

Commercial real estate faces direct pressures

The most tangible concern is in the commercial sector, where a large-scale public lease-termination directive by the General Services Administration will shrink the government’s real estate footprint.

“Loans with exposure to GSA leases face increased default risk and potentially higher loss, with negative rating actions possible if property performance trends or market fundamentals deteriorate beyond Fitch’s sustainable long-term expectations,” the rating agency said.

Fitch has downgraded and put a “rating watch negative” outlook on at least one older transaction, BBCCRE2015-GTP, which is “secured entirely by office properties leased entirely by GSA tenants.”

Residential real estate pressures

The rating agency’s crystal ball is cloudier when it comes to the single-family market.

“Details of changes to residential housing policy — and hence implications for the U.S. RMBS market — are less clear,” Fitch said.

Projections for the economy, in addition to a downsized federal mortgage presence and cross-border building materials tariffs, are creating uncertainty, according to the rating agency.

“Slower economic growth will likely result in small upticks in delinquencies, modifications and foreclosures, mostly among more vulnerable, subprime borrowers, although we do not expect ratings to be affected,” Fitch said.

Broader implications

Policy uncertainty has been top-of-mind not only in the smaller private mortgage-backed securities markets that Fitch typically evaluates, but also larger multitrillion-dollar government-related MBS markets.

What the ramifications of current federal policies are is “the No. 1 question we get,” said Walt Schmidt, senior vice president of mortgage strategies at FHN Financial.

Speculation continues over whether two influential quasi-public mortgage investors who account for a large part of the market, Fannie Mae and Freddie Mac, will be released from government conservatorship. But there’s a lack of conclusive answers, he noted.

That hasn’t had an outsized influence on trading, but it does appear to be sidelining some investors.

“The market isn’t making a big push to buy bonds right now, it’s wait and see,” Schmidt said. He noted that government-related MBS as of Thursday morning were “trading in normal ranges but on the wider side of spreads and the lower side of prices.” 

High stakes decisions ahead

Trump administration officials have suggested there are limits to how much they want to upset the applecart in this influential market.

Treasury Secretary Scott Bessent has said he wouldn’t want a conservatorship exit that raised mortgage rates, and the regulator of the two big government-sponsored enterprises Bill Pulte told CNBC recently that he wouldn’t take any steps to change their traditional conforming limit.

Officials do need to consider how sizable the bond markets they could affect with their directives are, Schmidt said.

“They are huge,” he said. “It matters what they do in policy. They have to be very careful.”