Issuers of expanded-credit MBS haven’t been able to stock deals with new production while one of the largest post-2010 prime non-agency MBS hit the market this week.

Three new non-agency MBS were introduced in the market recently. Two of the deals are backed by mortgages for investment properties.

Securitization of non-qualified mortgages is generating healthy profits. However, issuers face a dilemma: Originations of the product have slowed.

Issuers of prime non-agency MBS are completing deals with mortgages originated after the market volatility of March while expanded-credit MBS continue to be stocked with older loans.

Issuance in the MBS and ABS markets seems to be humming along with tighter spreads. But industry participants warn investors should beware of over-optimism.

There’s little uniformity in how non-agency MBS issued before 2018 will address the end of LIBOR. The majority of deals will switch to a fixed rate, while others allow for an alternative reference rate.

Demand for non-QM MBS has returned to pre-pandemic levels even though the deals include a significant amount of loans in forbearance and fewer protections for investors.

Following in the footsteps of Citi and JPMorgan Chase, Wells Fargo is preparing to issue a non-qualified mortgage MBS. The bank plans to securitize small pools of its non-agency originations on a regular basis.

The security will be backed by non-qualified mortgages originated by A&D Mortgage, an affiliated lender.

Issuance of expanded-credit MBS was expected to remain suppressed after volatility in March halted activity. After a strong second quarter, industry analysts revised their projections.