U.S. Policy Shifts Introduce Uncertainty for Structured Finance Markets
March 27, 2025
Source: Fitch Ratings
Fitch Ratings-London/New York-26 March 2025: Policy shifts in the United States are driving increased uncertainty about asset performance across some structured finance sectors, Fitch Ratings says. Potential risks stem from macro-economic policies increasing pressure on U.S. consumers and from measures with sector-specific impacts.
The U.S. General Services Administration (GSA) has directed most federal government agencies to terminate existing commercial property leases. As a result, U.S. CMBS loans with exposure to GSA leases face increased default risk and potentially higher losses, with negative rating actions possible if property performance trends or market fundamentals deteriorate beyond Fitch’s sustainable long-term expectations. Fitch recently downgraded all five classes of notes issued by BBCCRE Trust 2015-GTP, secured entirely by office properties leased to GSA tenants, and placed them 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. Widespread lease terminations could also introduce significant tenant rollover risks, negatively affect CMBS loan performance and refinancing, and lead to higher delinquencies, with knock-on effects for other properties relying on government tenant foot traffic.
More broadly, weaker economic growth, higher inflation, and delayed Federal Reserve rate cuts may affect commercial real estate (CRE) transaction and refinancing volumes, although tax policy shifts could influence capital flows into CRE investment. A less restrictive regulatory environment might spur development, but immigration policy changes could cause labor shortages in construction. The hospitality sector may also experience labor shortages, while tariffs may disrupt supply chains, disproportionately affecting tenants in the industrial and retail sectors.
Operational changes within the U.S. Department of Education could affect the performance of Federal Family Education Loan Program (FFELP) student loans backing Fitch-rated asset-backed securities (ABS) transactions. Fitch is closely monitoring these changes, which could affect operations that support FFELP ABS, particularly reinsurance and supplemental payments. Payments processing has not slowed and Fitch expects critical operations supportive to FFELP student loan ABS to continue. But a strategic reallocation of departmental resources introduces operational uncertainty that could cause administrative delays and affect the regular payments integral to FFELP ABS performance.
Details of changes to residential housing policy, and hence implications for the U.S. RMBS market, are less clear, although policy shifts are expected to include less regulation and a smaller role for the Federal government in the housing finance system. Certain equitable housing-related initiatives from the Biden administration will likely be de-emphasized or de-funded. 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.
Reforms to Government-Sponsored Entities (GSE) that result in a reduction of Fannie Mae’s and Freddie Mac’s footprint through increased loan-level pricing adjustments, or other mechanisms, would likely shift mortgage financing to the Private Label Securitization (PLS) market.
Tariffs may increase home prices and further reduce housing affordability, as rising construction costs are partially passed on to the buyer. Homebuilder sentiment hit a new low in March 2025 and the U.S. remains short on supply relative to the increased demand that has driven home prices higher in recent years. Fitch views the national housing market to be 11.1% overvalued on average.
In its latest Global Economic Outlook, Fitch has cut its growth forecast for the U.S. for 2025 and 2026, down to 1.7% and 1.5%, respectively. Projected growth is now well below trend and down from nearly 3% annual growth in 2023 and 2024. Fitch expects U.S. near-term inflation to increase due to the tariff shock and for the Federal Reserve to delay further easing until 4Q25, cutting rates just once this year.
Related research:
World Growth Forecasts Cut Sharply as US Starts Global Trade War
Global Economic Outlook - March 2025
U.S. CMBS with Govt Lease Exposure Face Increased Default, Loss Risk
Fitch Downgrades and Places Five Classes of BBCCRE 2015-GTP on Rating Watch Negative
US Department of Education Operational Changes May Impact FFELP ABS Ratings
Contacts:
Will Rossiter
Director, Enhanced Analytics – Structured Finance
+33 1 44 29 91 47
Fitch Ratings Ireland Limited
60 rue de Monceau
Paris 75008
Grant Bailey
Managing Director, Structured Finance Enhanced Analytics
+1 212 908-0544
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019
Melissa Che
Senior Director, US Structured Finance - CMBS
+1 212 612 7862
melissa.che@fitchratings.com
Elsa Segura
Senior Director, US Structured Finance - ABS
+1 312 368 2056
elsa.segura@fitchratings.com
Kevin Kendra
Managing Director - US RMBS
+1 212 908 0760
kevin.kendra@fitchratings.com
Sarah Repucci
Senior Director, Risk
Credit Commentary & Research
+1 212 908 0726
sarah.repucci@fitchratings.com
Mark Brown
Senior Director, Risk
Credit Commentary and Research
mark.brown@fitchratings.com
+44 20 3530 1588
Media Relations: Anne Wilhelm, New York, Tel: +1 212 908 0334, Email: anne.wilhelm@thefitchgroup.com
The U.S. General Services Administration (GSA) has directed most federal government agencies to terminate existing commercial property leases. As a result, U.S. CMBS loans with exposure to GSA leases face increased default risk and potentially higher losses, with negative rating actions possible if property performance trends or market fundamentals deteriorate beyond Fitch’s sustainable long-term expectations. Fitch recently downgraded all five classes of notes issued by BBCCRE Trust 2015-GTP, secured entirely by office properties leased to GSA tenants, and placed them 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. Widespread lease terminations could also introduce significant tenant rollover risks, negatively affect CMBS loan performance and refinancing, and lead to higher delinquencies, with knock-on effects for other properties relying on government tenant foot traffic.
More broadly, weaker economic growth, higher inflation, and delayed Federal Reserve rate cuts may affect commercial real estate (CRE) transaction and refinancing volumes, although tax policy shifts could influence capital flows into CRE investment. A less restrictive regulatory environment might spur development, but immigration policy changes could cause labor shortages in construction. The hospitality sector may also experience labor shortages, while tariffs may disrupt supply chains, disproportionately affecting tenants in the industrial and retail sectors.Operational changes within the U.S. Department of Education could affect the performance of Federal Family Education Loan Program (FFELP) student loans backing Fitch-rated asset-backed securities (ABS) transactions. Fitch is closely monitoring these changes, which could affect operations that support FFELP ABS, particularly reinsurance and supplemental payments. Payments processing has not slowed and Fitch expects critical operations supportive to FFELP student loan ABS to continue. But a strategic reallocation of departmental resources introduces operational uncertainty that could cause administrative delays and affect the regular payments integral to FFELP ABS performance.
Details of changes to residential housing policy, and hence implications for the U.S. RMBS market, are less clear, although policy shifts are expected to include less regulation and a smaller role for the Federal government in the housing finance system. Certain equitable housing-related initiatives from the Biden administration will likely be de-emphasized or de-funded. 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.
Reforms to Government-Sponsored Entities (GSE) that result in a reduction of Fannie Mae’s and Freddie Mac’s footprint through increased loan-level pricing adjustments, or other mechanisms, would likely shift mortgage financing to the Private Label Securitization (PLS) market.
Tariffs may increase home prices and further reduce housing affordability, as rising construction costs are partially passed on to the buyer. Homebuilder sentiment hit a new low in March 2025 and the U.S. remains short on supply relative to the increased demand that has driven home prices higher in recent years. Fitch views the national housing market to be 11.1% overvalued on average.
In its latest Global Economic Outlook, Fitch has cut its growth forecast for the U.S. for 2025 and 2026, down to 1.7% and 1.5%, respectively. Projected growth is now well below trend and down from nearly 3% annual growth in 2023 and 2024. Fitch expects U.S. near-term inflation to increase due to the tariff shock and for the Federal Reserve to delay further easing until 4Q25, cutting rates just once this year.
Related research:
World Growth Forecasts Cut Sharply as US Starts Global Trade War
Global Economic Outlook - March 2025
U.S. CMBS with Govt Lease Exposure Face Increased Default, Loss Risk
Fitch Downgrades and Places Five Classes of BBCCRE 2015-GTP on Rating Watch Negative
US Department of Education Operational Changes May Impact FFELP ABS Ratings
Contacts:
Will Rossiter
Director, Enhanced Analytics – Structured Finance
+33 1 44 29 91 47
Fitch Ratings Ireland Limited
60 rue de Monceau
Paris 75008
Grant Bailey
Managing Director, Structured Finance Enhanced Analytics
+1 212 908-0544
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019
Melissa Che
Senior Director, US Structured Finance - CMBS
+1 212 612 7862
melissa.che@fitchratings.com
Elsa Segura
Senior Director, US Structured Finance - ABS
+1 312 368 2056
elsa.segura@fitchratings.com
Kevin Kendra
Managing Director - US RMBS
+1 212 908 0760
kevin.kendra@fitchratings.com
Sarah Repucci
Senior Director, Risk
Credit Commentary & Research
+1 212 908 0726
sarah.repucci@fitchratings.com
Mark Brown
Senior Director, Risk
Credit Commentary and Research
mark.brown@fitchratings.com
+44 20 3530 1588
Media Relations: Anne Wilhelm, New York, Tel: +1 212 908 0334, Email: anne.wilhelm@thefitchgroup.com
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