Mortgage Market Monitor January 2019

Monthly Commentary


Market Update

January was a positive month for risk assets as a big reversal in the sentiment that had been weighing risk assets down throughout the end of 2018 finally allowed risk to rally. Last year ended with significant uncertainty in the market, but that tone quickly changed to hopefulness as some crucial concerns that the market was facing subsided. FOMC policy turned dovish, trade war tensions eased with the possibility of the US relaxing some of the tariffs on Chinese imports and the longest US government shutdown finally came to an end. With stocks and credit rebounding the overall broader risk-on sentiment led to a grind tighter in mortgage credit spreads as well. Bonds were initially thinly bid to start the year but by January’s end, bidding was aggressive with end-accounts and dealers chasing bonds higher. Trading activity picked up with Trace volume increasing to 13.6bn on 5.53bn of secondary bid list supply. Dealers ended January longer by 262mm, leaving spreads 15-25 bps tighter in legacy RMBS and 25-60 bps tighter in CRT.

January was an active month in the new issue market with 7.1bn pricing across 12 transactions. Deals were well subscribed with most deals pricing at the tighter end of guidance. A subset of the deals that priced across RMBS subsectors in January is listed below:

Non-QM

  • Caliber issued 349mm COLT 2019-1: AAA rated A1 (35.8% CE/2.1 WAL) 95/n/3.607% yld, AA rated A2 (31.8% CE/2.1 WAL) 115/n/3.807% yld, A rated A3 (13.4% CE/2.1 WAL) 125/n/3.907% yld
  • Angel Oak issued 609mm AOMT 2019-1: AAA rated A1 (36.0% CE/2.0 WAL) at EDSF+105/3.811% yld, AA rated A2 (27.1% CE/2.0 WAL) at EDSF+115/3.911% yld, A rated A3 (19.1% CE/2.0 WAL) at EDSF+125/4.011% yld
  • NRZ issued 294mm NRZT 2019-NQM1: AAA rated A1 (34.6% CE/2.7 WAL) at 95/n/3.604% yld, AA rated A2 (25.2% CE/2.7 WAL) at 115/n/3.804% yld, A rated A3 (13.8% CE/2.7 WAL) at 120/n/3.854% yld

Prime Jumbo

  • Wells Fargo issued 711mm WFMBS 2019-1: AAA rated 4.0% PT A1 (15.0% CE/5.0 WAL) 1-26 back FNCL4, AAA rated 4.0% FCF/75% A3 (15.0% CE/ 2.8 WAL) 1-20 back FNCI4, AAA rated 4.0% LCF/25% A5 (15.0% CE/11.5 WEAL) 140/n, AAA rated 4.0% FCF/60% A7 (15.0% CE/2.0 WAL) 75/n, AAA rated 4.0% LCF/40% A9 (15.0% CE/ 9.3 WAL) 138/n

Credit Risk Transfer

  • Freddie issued 714mm STACR 2019-DNA1: BBB rated M1 (3.0% CE/1.8 WAL) 90dm, B+ rated M2 (1.1% CE/6.5 WAL) 265dm, B- rated B1 (0.6% CE/10.0 WAL) 465dm, unrated B2 (0.1% CE/10 WAL) 1075dm

RPL

  • Towd Point issued 1.29bn TPMT 2019-1: AAA/AAA rated A1s (25% CE/3.9 WAL) at 125n and AA/AA rated A2s (18.7% CE/10.6 WAL) at 150n

Investor

  • Annaly issued 393mm OBX 2019-INV1: AAA rated 4.5% PT A3 (20.0% CE/4.5 WAL) 140/n/4.054% yld, AAA rated 4.0% FCF A8 (20.0% CE/2.0 WAL) 100/n/3.727% yld, AAA rated 4.0% MCF (20.0% CE/5.3 WAL) 140/n/4.06% yld.

Collateral Performance

Serious delinquencies were fairly flat across all sectors in January. Prime increased by 1 basis point to 3.76%; Alt-A delinquencies decreased by 6 basis points to 9.31%; Option Arm delinquencies decreased by 5 basis points to 16.95% and Subprime delinquencies increased by 6 basis points to 19.81%.

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 have been on a declining trend since the beginning of 2018. Prime delinquencies were flat at 13.83%, Alt- A delinquencies declined 247 basis points to 27.77% and Subprime delinquencies decreased 86 bps to 36.00%.

Voluntary prepayments were mixed across sectors this month. Prime CRRs came in at 10.8%, up 21 basis points month-over-month; Alt-A CRRs were 10.0%, down 47 basis points month-over-month; Option Arm CRRs were 8.3%, down 26 basis points month-over-month and Subprime CRRs were 5.9%, down 13 basis points month-over-month. Month-over-month CDRs were also mixed across sectors. Prime CDRs increased by 15 basis points to 0.94%; Alt-A CDRs decreased by 1basis point to 2.32%; Option Arm CDRs decreased by 19 basis points to 3.75%, and Subprime CDRs decreased by 17 basis points to 3.72%.

Case-Shiller futures now indicate a flat to slightly declining environment in residential home prices, predicting home prices will decline -0.2% annually during the next four years. Year-over-year, home prices are up 4.7% across Case-Shiller’s 20 major city index. At the national level, changes in severities were mixed across sectors. At the state level, California Subprime severities were lower at 49% this month. Florida Subprime severities were lower at 87%. New York Subprime severities decreased to 85%; and Nevada Subprime severities increased to 91%.

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