Sprout originated about half of the loans in a new $293.5 million expanded-credit MBS from an affiliate of Lone Star Funds. Fitch Ratings assessed the deal and suggested that risks tied to Sprout were limited.
Non-QMs are a double-edged sword for lenders, offering attractive margins along with extreme volatility risk. Industry analysts suggest demand for the loans in the secondary market will recover when lenders start selling mortgages with higher interest rates.
Rising interest rates had a major impact on non-agency MBS issuance in the second quarter, with volume down nearly 40% on a sequential basis. Expanded-credit MBS issuance held up better than prime volume, though the ECM sector is now in turmoil. (Includes data chart.)
Western Alliance Bank sold first-loss exposure on a pool of mortgages with an unpaid principal balance of $3.88 billion. The mortgages were acquired from various correspondent sellers and include many non-agency jumbos.
PRP Advisors issued its first non-agency MBS with newly originated mortgages for investment properties. To this point, Balbec’s non-agency MBS issuance has focused on seasoned mortgages.
Kroll Bond Rating Agency published a report focusing on mortgages originated by CDFIs and their inclusion in non-agency MBS. The Change Company defended its practices while Quontic Bank stopped offering “no ratio” loans.
Spreads on expanded-credit MBS issuance have widened significantly this year as lenders sell mortgages originated prior to the runup in interest rates. Issuance has slowed but market participants are optimistic in the long term.
A handful of real estate investment trusts acquired non-QMs at a discount as interest rates increased during the first quarter. Lenders selling the loans took some losses but appear to have weathered the storm.
MFA Financial took a large loss in the first quarter as rising interest rates reduced the value of non-QMs on the REIT’s balance sheet. Lima One, a business-purpose lender now owned by MFA, was a bright spot.