Non-QM Mortgage Bond Market Misconceptions

first_img Servicers Navigate the Post-Pandemic World 2 days ago  Print This Post Previous: How Europe’s Example Could Help Address America’s Housing Crisis Next: Hazards Ahead for the National Flood Insurance Program Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer. Sign up for DS News Daily Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Share Save The Week Ahead: Nearing the Forbearance Exit 2 days ago Non-QM Mortgage Bond Market Misconceptions About Author: Seth Welborn Home / Daily Dose / Non-QM Mortgage Bond Market Misconceptions Non-QM bond issuances have been on the rise, Bloomberg reports. But even amidst this positive move, some skeptics worry about non-QM’s performance along the road ahead. With misconceptions and negative pre-recession associations lingering, how is non-QM paving the way for responsible lending to borrowers who don’t fit within the QM bucket, without the pitfalls of subprime?According to Barclays, this surge comes as initial indications of delinquency rates on the loans are starting to emerge, about 3% to 5% in some bonds. However, Bloomberg states that the non-QM bond market is too small for now to cause the kind of broader disruptions that subprime bonds did before the recession. The bonds themselves also have more safeguards for investors than they used to. According to a Fitch Ratings analysis, an average of 36% of principal would have to be lost before the top-rated slice took a hit. The cushion in crisis-era “alt-A” bonds with the same rating was just 6%.Speaking with MReport, Denis G. Kelly, SVP of Sprout Mortgage, recently noted that non-QM loans are a different breed.”Non-QM loan performance is very strong right now,” Kelly said. “That’s the number one. Are you making responsible loans? The misconception may be that they equate it to what was happening in 2006, 2007, 2008—those were a very different type of loan.”Aaron Samples, CEO of First Guaranty Mortgage, echoed this sentiment, noting the misconceptions surrounding non-QM loans as “sub-prime.”“The biggest challenges lenders face today are around the stigma of the product being misunderstood as a sub-prime product,” Samples told MReport.According to the American Enterprise Institute, the non-QM market is the fastest-growing segment of non-agency residential mortgage-backed securities in the U.S., despite still being a relatively small slice of the pie. The non-QM market is on track to double, or even triple, last year’s securitization issuance within this year.S&P found that there have been 20 odd transactions year-to-date, totaling over $6 billion in issuance, which is already almost double 2017’s full-year volume. S&P also notes that, when compared to other RMBS categories, non-QMs have prepaid quicker, often soon after loan origination. The report found a conditional prepayment rate (CPR) 35%.“It’s not the subprime we remember from 2006 to 2007,” said Mario Rivera, Managing Director of the Fortress Credit Funds business, which has bought non-QM bonds. “It’s more of a second or third inning of non-QM. We’re getting the best collateral before the more aggressive lending comes in.” November 5, 2019 3,099 Views Demand Propels Home Prices Upward 2 days ago The Best Markets For Residential Property Investors 2 days ago The Best Markets For Residential Property Investors 2 days ago Servicers Navigate the Post-Pandemic World 2 days ago Data Provider Black Knight to Acquire Top of Mind 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago 2019-11-05 Seth Welborn Data Provider Black Knight to Acquire Top of Mind 2 days ago Related Articles Demand Propels Home Prices Upward 2 days ago in Daily Dose, Featured, News, Secondary Market Subscribelast_img

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