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.
The SFA is working to establish a standards-setting organization that would help increase investments in non-QMs. And the association wants prime non-agency MBS to be included in any future revival of TALF.
The $500 million deal allows financing of non-QMs. Moody’s placed a preliminary A1 rating on the deal, while it typically gives a AAA rating on warehouse funding securitizations that focus on GSE-eligible loans.
MISMO and SFA are separately working to update the ASF dataset for non-agency MBS; BNY Mellon is offering new agency MBS service; a relatively rare downgrade for commercial MBS.
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