Moody’s is considering increasing credit enhancement requirements and capping ratings for mortgage warehouse lending securitizations that allow for “wet” loans.
Spreads on jumbo MBS widened in recent months as the supply of prime non-agency MBS surged. Redwood Trust opted for more whole-loan sales during the third quarter while JPMorgan Chase remained an active MBS issuer.
While caps on GSE acquisitions of loans for investment properties were suspended mid-September, non-agency issuers continue to package the loans in their MBS. Three firms entered the sector during October.
The non-agency securitization business is hot but maybe it’s too hot? Some market participants contend issuing banks are eyeing the rating services for talent.
The difference between interest rates on non-QMs in MBS and the interest rate paid to investors in the securities is helping to protect investors from losses. Excess spread in the sector increased as seasoned loans were repackaged.
A handful of MBS and ABS have incorporated blockchain in a limited fashion. Proponents of the technology suggest that it will improve efficiencies and decrease costs.
Changes to underwriting standards and home price appreciation helped investors in non-agency MBS largely avoid losses during the pandemic. By comparison, cumulative losses on subprime MBS during the financial crisis of 2008 hit nearly 20%.
Issuers are still stocking non-agency MBS with GSE-eligible mortgages for investment properties. Lenders and issuers are considering their options following a suspension of limitations placed on the GSEs.
The definitions used by non-agency MBS lenders and issuers aren’t consistent and many terms haven’t been updated since 2009. The MISMO and the SFA are separately working on setting new standards.
The creation of a U.S. sovereign wealth fund could grease the skids for an end to the conservatorships of Fannie Mae and Freddie Mac.
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