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.
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.
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.
One of the five draft bills proposed by the House Democrats this week seeks to establish a board that would be responsible for assigning rating services to provide grades on MBS and ABS.
Stakeholders believe an alignment will ensure the most competitive mortgage terms are accessible to the broadest segment of QM-eligible borrowers while continuing to promote safe and sound lending practices.
Not since the go-go days of the mid 2000s has a national subprime REIT pulled off an IPO. If Angel Oak’s offering goes well, might the floodgates open? Wall Street can only hope.
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