Most companies that issued non-agency MBS with GSE-eligible investment-property loans during the fourth quarter haven’t offered similar deals thus far in 2022.
Spreads on MBS involving non-qualified mortgages have widened due to rising interest rates and excess supply. However, demand is on the rise again as new buyers are entering the space.
Spreads on non-agency MBS issued early this year were wider than the pricing seen near the end of 2021. Industry participants witnessed volatility in the broader financial markets along with an increase in the supply of non-agency MBS.
Annaly Capital Management’s net income declined by nearly 20% from the third to the fourth quarter and AGNC Investment took a loss as agency MBS values fluctuated due to actions by the Federal Reserve.
Some investors in MBS and ABS are ready to discard data collected in the past two years due to distortions from actions by the federal government. One problem: projecting asset performance moving forward.
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?
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.
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.
Changes to underwriting standards and home price appreciation helped investors in non-agency MBS largely avoid losses during the pandemic. By comparison, cumulative losses on subprime MBS during the financial crisis of 2008 hit nearly 20%.
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.
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