Improvements to practices in the non-agency MBS market will help to protect investors from lenders that don’t make it through the current market contraction, according to Kroll Bond Rating Agency.

August marked the lowest monthly output of agency single-family mortgage-backed securities since June 2019.

Investors that once focused on lower tranches of non-agency MBS are shifting up in credit, seeing just as strong returns from AAA-rated tranches with fewer risks. Investors in agency MBS are also changing strategies as interest rates rise.

In 2020, the SEC made a move to apply a disclosure rule that had been in effect for nearly 30 years to MBS and ABS. Industry participants have been able to delay enforcement of the rule while seeking changes to the disclosure requirements.

Investors have been asking for more data on the social aspects of loans in Ginnie Mae pools, said agency President Alanna McCargo.

Since the Federal Open Market Committee ostensibly began to let them run off on June 1, SOMA’s holdings of agency MBS have increased by $20 billion.

Angel Oak Mortgage suffered widening losses in the second quarter amid weak demand in the secondary market for non-QMs. Still, officials at the REIT suggest that things are looking up.

For the first time since May, a non-agency MBS with GSE-eligible mortgages for investment properties hit the market. And Change Lending switched products with its latest offering, focusing on mortgages with income verification. Overall, issuance remains slow.

Angel Oak Capital Advisors and a portfolio manager with the company settled with the SEC, which alleged improper reporting of delinquencies on a fix-and-flip securitization issued by Angel Oak in 2018.

There’s nowhere to hide for non-agency MBS issuers as quickly rising interest rates prompt losses. Loans the issuers are looking to sell have seen limited demand and lose value when retained even short-term.