No one’s shouting “fire” in a crowded non-QM movie house yet, but there are scattered concerns whole-loan pricing may have gotten ahead of itself. Something to keep an eye on?
Congress is getting closer to passing legislation that would help legacy MBS and ABS transition away from LIBOR; there’s a securitization angle in Zillow’s move to discontinue its fix-and-flip business.
Spreads on jumbo MBS widened in recent months as the supply of prime non-agency MBS surged. Redwood Trust opted for more whole-loan sales during the third quarter while JPMorgan Chase remained an active MBS issuer.
While caps on GSE acquisitions of loans for investment properties were suspended mid-September, non-agency issuers continue to package the loans in their MBS. Three firms entered the sector during October.
The non-agency securitization business is hot but maybe it’s too hot? Some market participants contend issuing banks are eyeing the rating services for talent.
The difference between interest rates on non-QMs in MBS and the interest rate paid to investors in the securities is helping to protect investors from losses. Excess spread in the sector increased as seasoned loans were repackaged.
Issuers are still stocking non-agency MBS with GSE-eligible mortgages for investment properties. Lenders and issuers are considering their options following a suspension of limitations placed on the GSEs.
The definitions used by non-agency MBS lenders and issuers aren’t consistent and many terms haven’t been updated since 2009. The MISMO and the SFA are separately working on setting new standards.
The Fed could end its stimulus-related purchases of agency MBS by the middle of 2022; S&P official provides an example of just how conservative rating services can be when assessing non-agency MBS and ABS.
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