DBRS Morningstar Publishes H2 2019 Non-QM RMBS Performance Update

DBRS, Inc. (DBRS Morningstar) published a commentary titled, “Second Half 2019 Non-QM RMBS Performance Update: Fast Prepays Continue to Bolster Credit Performance as Delinquencies Remain Generally Low.”

From June through November 2019, the credit performance of residential mortgage-backed securities backed by non-qualified, or non-QM, mortgage loans that DBRS Morningstar rated remained generally favorable. Fast voluntary prepayments continued to bolster credit performance by causing credit-enhancement levels for all rated bonds to rise because the pools paid down and the share of the outstanding subordinated bonds increased. The rise in credit enhancement levels offset an increase in a share of the seriously delinquent loans (60 or more days past due), which remained generally low but jumped in a few seasoned deals as the collateral pools shrunk amid paydowns and a few previously current borrowers became delinquent on mortgage payments.

Barring a sudden economic downturn, we expect that serious delinquency rates might rise somewhat as the pools pay down faster than the servicers resolve the existing delinquencies but remain generally below the credit support available to the rated bonds. Even if the voluntary prepayment rates slow curbing the rise in credit enhancement, the serious delinquency rates will likely remain contained because (1) the rate at which always current borrowers become delinquent, one of the leading indicators for the expected future serious delinquency rates, still remains generally low and (2) the credit quality of the loans remaining in pools is about the same as those prepaid, which indicates a limited tail risk.

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A full copy of this commentary is available by contacting us at info@dbrs.com.

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