At least eight expanded-credit MBS rated by DBRS Morningstar suffered losses in the second half of 2019. Investors, though, were protected due to high credit enhancement levels.
After a lull in December, issuers are bringing non-agency MBS to the market. Redwood Trust is planning a deal with seasoned mortgages while New Residential has an expanded-credit MBS.
Expanded-credit MBS issuance looks likely to increase again in 2020, but not at the exponential growth rate seen since the sector emerged in 2015. A major variable is how the CFPB will address the QM patch.
Competition for non-QMs is fierce among aggregators in the secondary market. The loans offer strong returns when held in portfolio or when packaged into MBS. However, some investors believe the bids are getting overheated.
A busy market: An affiliate of Neuberger Berman is prepping a $411.1 million expanded-credit MBS; Credit Suisse increased the number of lenders it's sourcing non-QMs from; and an affiliate of PIMCO issued another deal with seasoned non-QMs that were subject to clean-up calls.
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