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.
Two prominent non-QM lenders failed in recent months amid volatility in the market. Non-agency aggregators suggest that the issues were lender-specific and the market is improving.
A study by the European Central Bank found evidence that rating services respond to their competitive environments by either inflating ratings or altering the strictness of their rating standards.
MBS and ABS participants gathered in Las Vegas this week, discussing volatility and weak demand from investors. The consensus? Buyers will remain cautious until getting a better handle on the Fed’s actions.
Angel Oak Director Robert McDonough noted the difficulties in pricing climate risks into securities. However, once investors can more actively analyze risks, residential MBS loan pools are likely to change, he said.
A revival in the scratch-and-dent market was a bright spot in non-agency MBS issuance in the second quarter. ECM volume held up better than activity in the prime sector. (Includes three data charts.)
Spreads on various types of residential MBS are wider than they were during the early days of the pandemic, suggesting that the assets aren’t particularly attractive to investors. However, that isn’t necessarily true.
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