Non-agency lenders looking to sell mortgages with lower interest rates only have whole-loan sales as an outlet as MBS investors wait for new originations.

Sprout originated about half of the loans in a new $293.5 million expanded-credit MBS from an affiliate of Lone Star Funds. Fitch Ratings assessed the deal and suggested that risks tied to Sprout were limited.

Non-QMs are a double-edged sword for lenders, offering attractive margins along with extreme volatility risk. Industry analysts suggest demand for the loans in the secondary market will recover when lenders start selling mortgages with higher interest rates.

Expanded-credit MBS have been few and far between in July while non-agency MBS issuers have yet to offer a prime deal during the month.

Rising interest rates had a major impact on non-agency MBS issuance in the second quarter, with volume down nearly 40% on a sequential basis. Expanded-credit MBS issuance held up better than prime volume, though the ECM sector is now in turmoil. (Includes data chart.)

Two prominent non-QM lenders ceased operations in the past two weeks amid weak demand for the loans. Still, other market participants are stressing that they remain in strong operating positions.

Non-QM impairments decline in May; SFA assessing TRID review scope; new hire at Angel Oak; New Residential rebrands as Rithm Capital.

Two prominent lenders involved in the expanded-credit market shuttered and planned MBS from major issuers are being downsized or pulled altogether.

Document automation led to an increase in non-QM lending and savings for theLender, according to a new case study by GoDocs.

Spreads on expanded-credit MBS issuance have widened significantly this year as lenders sell mortgages originated prior to the runup in interest rates. Issuance has slowed but market participants are optimistic in the long term.