"U.S. RMBS issuance increased significantly in 2024 amid a steady fed funds rate that finally began falling in 2024, reaching below 5% in October."

PLS activity measurements differ based on who is providing the data. A recent report from Morningstar DBRS put the market so far this year at over $114 billion, 84% higher than a sluggish 2023. It also tops the $113.4 billion volume in 2022, and that is with two months left in 2024.

KBRA's prediction for RMBS 2.0 this year, back in February, was for $67 billion and that was a $10 billion increase from an earlier outlook.

Uncertainty around the near-term interest rate environment could affect next year's activity. That is likely to be a central theme for the rest of this year and possibly into the early part of 2025.

"Combined with anticipated volatility from the change in U.S. administration, capital markets may react strongly to shifts in jobs data and Fed rate decisions. KBRA believes that while short-term disruptions may occur, spreads will stabilize as we approach mid-2025 when there is greater clarity around the incoming administration's policies," the report said.

The rating agency also speculated that a Trump Administration could delay or indefinitely suspend efforts by the Federal Housing Finance Agency to implement updated credit scoring models for the conforming loan market.

"Previously, GSE policy under Trump leaned toward limiting federal involvement, so a similar approach could deprioritize or alter this and other affordability-related updates," KBRA said. "The residential mortgage market may experience some disruption as stakeholders either adjust to the potential policy changes or are affected by compliance costs."

When it comes to performance of the mortgages, delinquencies so far this year remain low, especially for prime deals, where the rate has remained under 1%.

Even serious delinquencies, loans 90 or more days past due, remained steady throughout the year.

The exception is non-prime, which had a 2.9% seriously delinquent rate as of October. Modest increases in both early and late-stage delinquencies for non-prime mortgages were also observed at 6.3% for 30 days or more late and 3.9% for 60 days-plus.

"While non-prime products are seeing a rise in delinquencies, we view this trend as a return to normalcy rather than an indication of structural weakness," KBRA said.

Unusually slow prepayment speeds accentuated those delinquencies, but that does not undermine the resilience of the non-prime market, the rating agency added.

"Annualized net losses are near zero for all RMBS 2.0 assets in KBRA's indices," the report said. "Although the 'lock-in effect' of low fixed rates is expected to keep [prepayment speeds] low for loans originated through 2022, a broad-based increase has recently emerged as mortgage rates fell, with prime rates reaching 6.1% and non-prime at 11.5% as of October."

For 2025, improved underwriting standards and largely fixed-rate existing mortgages "is expected to sustain mortgage performance through 2025, with only mild credit softening anticipated, primarily within non-prime segments," KBRA said.