Prepayments helped pay down senior bonds, making the remaining subordinated tranches the larger share of an expanded-credit deal’s balance. Result: A larger cushion against potential losses, DBRS said.
Performance on non-agency MBS has improved after the spike in late payments seen in the spring. However, borrowers who are still delinquent could prompt losses for investors.
If the coronavirus continues to wreak havoc and the federal government doesn’t provide additional stimulus, the performance of residential MBS is expected to take a significant hit.
As borrowers in prime non-agency MBS transition out of forbearance plans, investors in the deals could experience reduced cashflows due to interest shortfalls.
Sterling Bank has offered to buy back all non-QMs after uncovering various problems with its lending program. Between May and July, the bank repurchased loans from five MBS, taking a loss.
Losses on non-agency MBS, a rarity for deals issued since 2010, look likely as forbearance plans for distressed borrowers end. Investors in the senior tranches appear to be safe for now.
Loans backing securitized products are holding up fairly well even though the use of forbearance has increased. A combination of investor protections and changes in underwriting practices is helping.
There’s a lack of standardization among non-agency MBS servicers regarding reporting of loans in forbearance. Investors are having difficulties understanding what exactly servicers are doing.
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