Mortgage Market Monitor December 2019

Monthly Commentary


Market Update

As a result of an improved macro backdrop that included a moderation in downside risks posed by the trade war and Brexit, risk assets finished 2019 on a positive note and in sharp contrast to a year earlier when several markets were battered by global crosscurrents. Though unlike major stock indices that rallied to new all-time highs during December, Non-Agency RMBS traded firmly and kept to its own pace where spreads remained tied to a narrow range on generally low volumes. While secondary supply managed to outpace the previous month’s 3.4 billion total by accumulating 3.7 billion, it did so mainly on the back of a single bid list. A bank seller put out for bid 44 legacy positions with 1.3 billion current face during the second week. The list saw strong account participation as evidenced by Trace data showing dealers only net longer 80 million by the end of the day. Without much supply elsewhere and with new issue activity thinning dramatically towards year-end, investors turned their attention to dealer balance sheets. Flows were skewed towards better buying from accounts in the amount of 596 million, which marked the highest monthly level that dealers were taken shorter during the year. Altogether, trading volumes amounted to 8.8 billion for the month and continued its longer term trend downward with 123 billion for 2019, down from 148 billion in 2018 and 187 billion in 2017. 

Primary market activity went from the busiest month of the year to the slowest, sinking from 16.1 billion in November to 1.3 billion in December. A notable absence was deal flow in the rapidly growing Non-QM sector; December ended as the only month in the year without a new issue. Nonetheless, total annual issuance in Non-QM/expanded prime continued to set new highs and reached 26 billion, more than double the 12 billion from 2018. A complete list of the five deals that priced during the month is provided below. 

Credit Risk Transfer

  • Freddie Mac’s 152mm STACR 2019-FTR3 reference pool consisting of collateral from previously issued 2017 and 2018 DNA transactions (low LTV) was oversubscribed and priced significantly tighter than IPT: B2 (0.10% CE/10.02 WAL) 480dm
  • Freddie Mac’s 111mm STACR 2019-FTR4 reference pool consisting of collateral from previously issued 2017 and 2018 HQA transactions (high LTV) was oversubscribed and priced significantly tighter than IPT: B2 (0.10% CE/10.02 WAL) 500dm

Re-performing

  • 315mm CIM 2019-R5 issued by Chimera and backed by RPL where the AAA rated A1 was preplaced:  Aa2/AA rated M1 (30.45% CE/7.93 WAL) 140/n, A3 rated M2 (24.70% CE/9.21 WAL) 170/n, Baa3 rated M3 (19.90% CE/10.55 WAL) 190/n
  • 324mm CSMC 2019-RPL10 unrated RPL from Credit Suisse: A1 (35.00% CE/2.57 WAL) 3.25% yield

Investor

  • JPMorgan’s 388mm JPMMT 2019-INV3 off of investor collateral: AAA rated 3.5% PT A3 (20.00% CE/4.62 WAL) 0-30bk UMBS3.5, AAA rated 3.5% FCF A4 (20.00% CE/2.56 WAL) 1-30bk DW3.5, AAA rated 3.5% LCF A5 (20.00% CE/10.81 WAL) 150/n, AAA rated L+100 A11 (20.00% CE/4.62 WAL) 105dm, AAA rated 3.5% PT A13 (20.00% CE/4.62 WAL) 0-31bk UMBS3.5, Aa1/AAA rated SNR SUPP A15 (12.00% CE/4.62 WAL) 1-10bk UMBS3.5

Collateral Performance

The percentage of serious delinquent legacy loans increased slightly across all sectors in December.  Prime delinquencies increased by 5 basis points to 3.06%; Alt-A delinquencies increased by 10 basis points to 7.72%; Option Arm delinquencies increased by 6 basis points to 15.04% and Subprime delinquencies increased by 17 basis points to 17.73%.  

In non-qm mortgages, the percentage of serious delinquencies rose across sectors in December.  Prime non-qm delinquencies increased by 2 basis points to 0.40%; Alt-A non-qm delinquencies rose 20 basis points to 1.73%; and Subprime non-qm delinquencies increased 75 basis points to 4.73%.

In Puerto Rico, serious delinquencies spiked after hurricane Maria to 27.6% in Prime mortgages, 47.2% in Alt-A mortgages, and 58.8% in Subprime mortgages.  These delinquency percentages declined from beginning of 2018  to their current pre-Maria levels.  Prime delinquencies increased 30 basis points to 10.77%, Alt-A delinquencies decreased 20 basis points to 21.32% and Subprime delinquencies increased by 55 bps to 27.82%.

Voluntary prepayments decreased across sectors this month.  Prime CRRs came in at 21.5%, down 1101 basis points month-over-month; Alt-A CRRs were 16.8%, down 1031 basis points month-over-month; Option Arm CRRs were 10.3%, down 107 basis points month-over-month and Subprime CRRs were 7.1%, down 315 basis points month-over-month.  Month-over-month CDRs declined across sectors.  Prime CDRs decreased by 29 basis points to 1.07%; Alt-A CDRs decreased by 79 basis points to 2.53%; Option Arm CDRs decreased by 55 basis points to 4.41%, and Subprime CDRs decreased by 139 basis points to 3.41%.  

Case-Shiller futures predict home prices will increase 1.4% annually during the next three years.  Year-over-year, home prices are up 2.2% across Case-Shiller’s 20 major city index.  At the national level, changes in severities were higher across sectors.  At the state level, California Subprime severities were higher at 51% this month.  Florida Subprime severities were higher at 94%.  New York Subprime severities increased to 83%; and Nevada Subprime severities increased to 69%.

 

 

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