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.
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 Fed could end its stimulus-related purchases of agency MBS by the middle of 2022; S&P official provides an example of just how conservative rating services can be when assessing non-agency MBS and ABS.
The SFA is working to establish a standards-setting organization that would help increase investments in non-QMs. And the association wants prime non-agency MBS to be included in any future revival of TALF.
The $500 million deal allows financing of non-QMs. Moody’s placed a preliminary A1 rating on the deal, while it typically gives a AAA rating on warehouse funding securitizations that focus on GSE-eligible loans.
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