U.S. RMBS: Q1 2024 Non-QM RMBS Performance Update—Deal DQs Mixed but Mostly Higher; Deal Performance Steady and Issuance Highest Since Q2 2022

In Q1 2024, credit performance in the U.S. non-Qualified Mortgage (non-QM) residential mortgage-backed securities sector was satisfactory as deal tests continued to be passed and defaults/losses stayed minimal. Both the sector weighted-average collateral delinquency (DQ) rate and prepayment speed rose incrementally from last quarter, but were mixed on a deal-level basis for the quarter. At this point in the cycle, total securitized non-QM DQs are well above pre-pandemic levels as sector outstandings on average continue to season, but remain within acceptable levels overall.

The macroeconomic backdrop for the latest full-quarter performance trends remained supportive, with the unemployment rate holding below 4.0% (3.8% at the latest March reading, only marginally higher than the prior quarter, but still at a historically low level). Consumption and economic activity remained resilient through Q1 2024 as did inflation, which held at 3.8% to 3.9% year over year. In housing, sales remained slow through January and February, but in March perked up to close the quarter on a positive note heading into the Spring home buying season. Mortgage rates remained elevated but relatively steady, holding in a narrow range between roughly 6.6% and 6.9% for Q1 2024, which at least allowed the market to become more accustomed to current rates. As housing activity remained modest, home prices showed a slight tapering on a national average basis. The Federal Housing Finance Agency House Price Index (HPI) purchase-only home price dipped 0.10% month over month for January, after effectively experiencing a near-term plateau in December 2023. The gain of 6.3% YOY in the HPI still provided improved loan-to-value ratios, except for the most recent origination vintages, which result in continued support for low defaults and reduced loss severity projections, particularly for moderate- and well-seasoned collateral.