After non-agency MBS issuance all but froze in March, issuers are beginning to return to the market. Neuberger Berman issued a non-QM MBS this week and others are working on deals as well.
The bulk of non-agency MBS currently being issued is backed by seasoned mortgages. Rating services are also adjusting criteria to account for the coronavirus.
Mortgage-related real estate investment trusts, including Redwood, have been hit hard by a wave of margin calls due to drastic declines in the value of their MBS. Redwood said it has met its margin calls so far.
The Fed is taking steps to boost the market for agency MBS and certain sectors of the ABS market, while non-agency MBS isn't receiving direct relief. The Structured Finance Association called for an expansion of the new TALF.
Investor demand for non-QMs plummeted in recent weeks due to fallout from the coronavirus. Some non-QM lenders have stopped originating loans and others are repricing their products.
Issuance of non-agency MBS and ABS is still being completed, but at a slower pace. Spreads have widened for new deals along with trading in the secondary market.
A longer statute of limitation and increased disclosure requirements could help attract long-term investors in the MBS and ABS market, industry experts recommend.
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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