Securitization market faces U.S. policy risk: Fitch

“Potential risks stem from macro-economic policies increasing pressure on U.S. consumers and from measures with sector-specific impacts,” it said.

In particular, U.S. mortgage-backed securities with exposure to commercial property leases with federal agencies that have been ordered to terminate those leases “face increased default risk and potentially higher losses,” Fitch said — adding that negative credit rating actions are possible “if property performance trends or market fundamentals deteriorate” beyond its long-term expectations.

For instance, Fitch recently downgraded a series of notes that are secured entirely by office properties leased to government tenants and placed those vehicles on Rating Watch Negative.

“A dramatic reduction in the U.S. government’s real estate footprint would further weaken office demand and strain major markets with already high vacancy rates, increasing availability and eroding rents,” Fitch said.

Additionally, extensive government lease terminations “could also introduce significant tenant rollover risks, negatively affect [mortgage-backed securities] loan performance and refinancing and lead to higher delinquencies, with knock-on effects for other properties relying on government tenant foot traffic,” it warned.

Beyond securitizations that are directly affected, policy shifts that lead to weaker economic growth, higher inflation and delayed interest rate cuts, may weigh on commercial real estate transaction and refinancing volumes, it said.

Fitch recently cut its growth forecast for the U.S. in 2025 and 2026. It now expects near-term inflation to increase “due to the tariff shock,” which will push back potential rate cuts from the U.S. Federal Reserve to the fourth quarter.

Additionally, businesses in the hospitality sector may face labor shortages, “while tariffs may disrupt supply chains, disproportionately affecting tenants in the industrial and retail sectors,” it said.

The implications for residential mortgage-backed securities are less clear, Fitch said.

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

However, higher tariffs and reduced immigration will lead to higher housing construction costs, and will further reduce housing affordability, the report said.

Finally, changes to the U.S. Department of Education could affect the performance of student loans backing certain asset-backed securities transactions, Fitch said — adding that it is “closely monitoring” these changes, which could disrupt the payments underpinning the performance of underlying loan assets.