U.S. RMBS: Q2 2024 Non-QM RMBS Performance Update - Deal Level DQs Channeling Horizontally and Structural Performance Trending Positively While Q2 Deal Characteristics Look Familiar

The Q2 2024 credit performance of the U.S. non-Qualified Mortgage (non-QM) residential mortgage-backed securities sector remained steady as individual deal tests continued to be passed sector wide and defaults/losses remained low. The sector's weighted-average pool delinquency (DQ) rate finished slightly lower while the aggregate prepayment rate rose again following the beginning of year pickup in Q1 2024. In Q2, a noticeable difference from Q1 2024 was the flattening of trends at the deal level as DQ and speed changes deal by deal showed a more modestly mixed distribution, whereas Q1 saw most individual deal metrics trending in the same direction. Although total securitized non-QM DQs are above pre-pandemic levels, the current level remains acceptable given the nature of the sector, as well as accounting for seasoning and the prevailing supportive landscape for mortgage credit.

The macroeconomic backdrop for the Q2 2024 credit metrics was relatively supportive. While the unemployment rate inched higher over the quarter, it still ended at a historically low level of 4.1% in June, up from 3.8% in March. Consumption and economic activity softened slightly through Q2 2024 as the June headline CPI figures showed overall prices falling by a slight -0.1% month over month but up 3.0% year over year. Home sales held at a relatively modest pace, but had been progressively slowing through June as the spring/summer home buying season entered its latter stages. Conventional mortgage rates in Q2 2024 stayed around 7%, holding within a 40 basis points (bps) range for the quarter, and now within a 60 bps range for the year to date, which kept mortgage costs somewhat steady.