Some 19.2% of non-QMs in MBS were modified or delinquent as of the end of August, down 70 basis points from July. Loan performance improved even as enhanced unemployment benefits expired.
While lenders like the CFPB’s proposal to provide QM status to certain non-QMs if the loans perform well for the first three years after origination, con-sumer advocates warned of reduced protections for borrowers.
The impairment rate on non-QM MBS declined to 19.3% in July from 20.4% in June. While loan performance is improving, MBS investors could suffer reduced cash flows and losses as modifications end.
A lack of standardized reporting is causing problems for non-agency MBS investors. In one non-QM MBS, research firm dv01 found 233 loans that had been modified while the trustee reported only 41 mods.
After increasing in March, April and May, the delinquency rate on securitized non-QMs declined in June. Now servicers are grappling with forbearance plans that are expiring.
The lack of standardization in the non-agency MBS market has raised concerns about how servicers are handling loans in forbearance. Critical details regarding loan performance are missing, according to investors.
Delinquencies and loan modifications on non-agency mortgages increased in May, but at a slower rate than the sharp increase in April. Delinquencies are much higher on non-QMs than jumbos.
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