Recent non-QM securitizations show signs of higher stress

Recent
vintages
of
non-QM
securitizations
are
leading
delinquency
rates
higher,
with
the
segment
posting
the
largest
increase
in
distress
over
the
past
12
months,
according
to
Fitch
Ratings.

Thirty-day
delinquencies
among
non-QM/non-prime
residential
mortgage-backed
securities
rose
174
basis
points
over
the
past
12
months
to
5.2%,
Fitch
said
in
a
report
issued
this
week.
RMBS
pooled
in
2023
saw
the
rate
surge
even
faster
at
240
basis
points
to
4.9%. 

“The
2023
vintage
is
the
largest
contributor
to
the
elevated
delinquencies
observed,”
Fitch
said.

Performance
of
more
recently
issued
RMBS
showed
delinquencies
up
across
all
types
of
securitizations.
By
comparison,
though,
prime
jumbo
30-day
delinquencies
were
up
by
3
basis
points
to
0.8%.

Similarly,
among
RMBS
delinquent
by
90
days
or
more,
the
non-QM/non-prime
segment
hit
2%
in
March,
jumping
86
basis
points
in
the
last
10
months.
The
surge
led
to
a
higher
expected
default
rate
in
Fitch’s
rating
stresses,
leading
to
a
negative
outlook
for
four
of
the
agency’s
non-QM
classes.  

Fitch’s
latest
report
points
to
a
continuation
of


trends
observed
earlier
this
year,
with
the
agency
alluding
to “weaker
collateral
attributes”
behind
the
increased
level
of
loan
stress. 

“The
increase
in
delinquencies,
however,
hasn’t
significantly
affected
expected
losses.
Losses
either
slightly
declined
or
remained
stable
due
to
support
from
home
price
appreciation,”
Fitch
said.

Fitch’s
findings
echo
a


recent
report
from
Morningstar
DBRS,
which
similarly
saw
higher
delinquencies
but
limited
losses.
More
recent
vintages
likely
include
loans
made
during
one
of
the
most
challenging
periods
for
lenders,
increasing
the
likelihood
for
non-QM
loans
to
be
backed
by
weaker
credit
profiles
compared
to
just
a
few
years
earlier,
Fitch
previously
said.  

Fitch
sees
some
further
stress
ahead
in
2024
as “the
effects
of
elevated
interest
rates
pass
through
the
economy
and
household
real
income
growth
slows,”
its
report
said.  

“Fitch
observes
performance
declines
across
all
newly
originated
sectors
that
are
exposed
to
borrowers
affected
by
affordability
stresses
and
increased
debt-service
burden.”

More
seasoned
transactions
carry
with
them
a
more
promising
outlook
thanks
to
loan-to-value
ratios
that
have
fallen
across
sectors
with
rising
home
prices,
improving
expected
losses,
the
ratings
agency
said.

The
latest
report
comes
as
housing
researchers
note
overall
delinquencies
and
foreclosures
sit
near
all-time
lows.
In
February,
2.8%
of
all
U.S.
mortgages
were
either
delinquent
or
in
the
foreclosure
process,
near
the
rate
of
a
year
earlier.
Seriously
distressed
loans
decreased
to
0.9%
of
all
mortgages
compared
to
1.2%
in
February
2023.