Mortgage Market Monitor March 2019

Monthly Commentary


Market Update

The Non-Agency RMBS market continued to rally in March even after two consecutive months of significant spread tightening to start off 2019. With many of the key supportive themes intact including a constructive market tone, non-agency spreads remained resilient to the weakness exhibited by broader risk assets following the FOMC meeting. The FOMC took an even sharper dovish turn in March, projecting no hikes in 2019, one hike in 2020 and announcing a full stop to the unwind of its balance sheet by September. Equities initially rallied, but stumbled after the markets interpreted the FOMC statement as a testament to the seriousness of the global economic slowdown. This, along with weak manufacturing data from the US and Europe, particularly Germany, elevated investor concerns and sent 10yr UST rates from 2.75% at the beginning of March down to 2.36%, before recovering to end the month at 2.4%.

After a drop in Non-Agency trading activity in February, secondary trading volumes rebounded in March with the help of selling from legacy holders. One of the lists that garnered the most attention was an 173mm list of re-performing seniors from an insurance account. The RPL list traded all-or-none to one dealer, who quickly sold out of all but three line items. The increase in supply was easily absorbed with dealers and money managers aggressive bidders, especially at the top of the capital structure. Demand remains robust for mortgage credit as investors still view the sector as attractive due to supportive housing fundamentals and yields quoted to loss adjusted scenarios. An additional tailwind also emerged in March with 30yr mortgage rates now 30 bps lower this year, and ~60 bps off the peaks of 2018. March ended with 11.2bn of Trace reported trading volume on 4.24bn of bid list supply. Dealers ended the month net sellers of 227mm, leaving legacy RMBS spreads 5-10 bps tighter and CRT 10-20 bps tighter across the capital structure. In March’s remits, 910mm of legacy RMBS deals were called, bringing YTD legacy redemptions to 1.6bn.

In March, new issuance was once again heavy across next generation non-agency products. Non-QM/expanded prime had the most active primary calendar in terms of both deals and volume. Oaktree came to market with their inaugural non-QM deal, BHLD 2019-1, which was well received and priced tighter than guidance. A more comprehensive list of the deals issued in March is below.

Credit Risk Transfer

  • Fannie Mae issued 1bn CAS 2019-R02: BBB+/A rated M1s (3.7% CE/1.47 WAL) at 85dm, B+/BBB- rated M2s (1.25% CE/5.83 WAL) at 230dm, unrated rated B1s (0.5% CE/9.95 WAL) at 415dm
  • Freddie Mac issued 608mm STACR 2019-DNA2: BBB-/A- rated M1 (3.5% CE/1.2 WAL) at 80dm, B/B+ rated M2 (1.1% CE/5.7 WAL) at 245dm, B- rated B1 (0.6% CE/10.0 WAL) at 435dm, unrated B2 (0.1% CE/10.0 WAL) at 1050dm

Non-QM/Expanded Prime

  • Angel Oak issued 620mm AOMT 2019-2: AAA/AA rated A1s (36.7% CE/1.97 WAL) at 95/n, AA/AA rated A2s (27.65% CE/1.97 WAL) at 110/n, A/A rated A3s (19.75% CE/1.97 WAL) at 115/n, BBB/BBB rated M1s (12.8% CE/4.08 WAL) at 155/n, BB/BB rated B1s (9.4% CE/4.08 WAL) at 250/n, B/B rated B2s (5.6% CE/4.08 WAL) at NA
  • Caliber issued 377mm COLT 2019-2: AAA rated A1 (24.7% CE/2.2 WAL) at 95/n, AA/AAA rated A2 (17.4% CE/2.2 WAL) at 105/n, A/AA- rated A3 (9.6% CE/2.2 WAL) at 115/n
  • Starwood issued 332mm STAR 2019-IMC1: AAA rated A1 (29.2% CE/2.1 WAL) at 97/n/3.378% yld, AA rated A2 (22.7% CE/2.1 WAL) at 115/n/3.558% yld, A rated A3 (12.6% CE/2.1 WAL) at 125/n/3.658% yld
  • Oaktree issued 268mm BHLD 2019-1: AAA rated A1 (28.1% CE/2.1 WAL) at 95/n/3.519%yld, AA+/AAA rated A2 (22.9% CE/2.1 WAL) at 115/n/3.719% yld, A-/A rated A3 (8.7% CE/2.1 WAL) at 125/n/3.819% yld
  • NRZ issued 305mm NRZT 2019-NQM2: AAA/AAA rated A1s (30% CE/2.74 WAL) at 100/n, AA/AA+ (21.15% CE/2.74 WAL) at 110/n, A/A rated A3s (12.15% CE/2.74 WAL) at 115/n, BBB/BBB+ rated M1s (7.7% CE/5.18 WAL) at 175/n, BB/BB B1s (4% CE/5.18 WAL) at 270/n and B/B B2s (1.85% CE/5.18 WAL) at 6% yield
  • Neuberger Berman issued 502mm HOF 2019-1: AAA/AAA rated A1s (34.9% CE/2.58 WAL) at 105/n, AA/AA rated A2s (28.25% CE/2.58 WAL) at 115/n, A/A rated A3s (16.8% CE/2.58 WAL) at 120/n, BBB/BBB rated M1s (10.75% CE/5.14 WAL) at 165/n and BB/BB rated B1s (6.2% CE/5.14 WAL) at 250/n

Prime Jumbo

  • Goldman issued 230mm GSRMBS 2019-PJ1: AAA rated 4.0% PT A1 (15.0% CE/4.79 WAL) 1-22 bk FN4s, AAA rated 4.0% FCF/75% A4 (15.0% CE/2.74 WAL) 1-22 bk DW4.0s, AAA rated 4.0% LCF/25% A5 (15.0% CE/10.93 WAL) 140/n
  • JP Morgan issued 438mm JPMMT 2019-2: AAA rated 4.0% PT A3 (12.0% CE/5.0 WAL) 1-20 bk FN4.0, AAA rated 4.0% FCF/75% A4 (12.0% CE/2.8 WAL) 1-18 bk DW4.0, AAA rated 4.0% LCF/25% A5 (12.0% CE/11.5 WAL) 140/n, AAA rated 4.0% FCF/59% A6 (12.0% CE/2.0 WAL) 70/n, AAA rated 4.0% LCF/41% A7 (12.0% CE/9.2 WAL) 138/n, AAA rated L+95 A11 (12.0% CE/5.0 WAL) 105dm

Non-performing/Re-performing

  • Lone Star issued 400mm VOLT 2019-NPL3: NR A1s (34.9% CE/1.2 WAL) at 4.00% yld, NR A2 (25.6% CE/2.3 WAL) 6.25% yld
  • Bayview issued 215mm BOMFT 2019-RN2: NR A1s (41.6% CE/1.53 WAL) at 4.00% yld Fix and Flip
  • Finance of America issued 217mm ANTLR 2019-RTL1: NR A1s (20% CE/1.95 WAL) at 4.5% yield, NR A2s (10% CE/2.49 WAL) at 5% yield, NR Ms (2% CE/2.49 WAL) at 7% yield
  • Toorak issued 225mm TRK 2019-1: NR A1s (20% CE/2.33 WAL) at 4.5% yield and NR A2s (10% CE/2.66 WAL) at 5% yield Investor
  • Invictus Capital issued 351mm VERUS 2019-INV1: AAA rated A1 (36.1% CE/2.0 WAL) at 90/n/3.307% yld, AA/AA+ rated A2 (28.3% CE/2.0 WAL) at 100/n/3.407% yld, A rated A3 (17.1% CE/2.0 WAL) at 115/n/3.557% yld
  • Chimera issued 383mm CIM 2019-INV1: AAA rated 4.0% PT A1 (20.0% CE/4.6 WAL) at 125/n, AAA rated L+100 A2 (20.0% CE/4.6 WAL) at 100dm, AAA rated 4.0% FCF/75% A7 (20.0% CE/2.6 WAL) at 85/n, AAA rated 4.0% LCF/25% A8 (20.0% CE/10.8 WAL) at 130/n

Collateral Performance

Serious delinquencies were mixed across sectors in March. Prime dellinquencies increased by 4 basis point to 3.62%; Alt-A delinquencies increased by 2 basis points to 9.07%; Option Arm delinquencies decreased by 5 basis points to 16.79% and Subprime delinquencies decreased by 10 basis points to 19.50%.

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 declined 55 basis points to 11.98%, Alt-A delinquencies declined 48 basis points to 25.9% and Subprime delinquencies declined 27 bps to 35.69%.

Voluntary prepayments were mixed across sectors this month. Prime CRRs came in at 11.5%, up 90 basis points month-over-month; Alt-A CRRs were 10.2%, up 16 basis points month-over-month; Option Arm CRRs were 7.1%, down 10 basis points month-over-month and Subprime CRRs were 5.4%, down 103 basis points month-over-month. Month-over-month CDRs were also mixed across sectors. Prime CDRs decreased by 7 basis points to 0.94%; Alt-A CDRs decreased by 10 basis points to 2.31%; Option Arm CDRs decreased by 49 basis points to 3.78%, and Subprime CDRs increased by 24 basis points to 3.76%.

Case-Shiller futures improved this month, predicting home prices will increase 1.4% annually during the next four years. Year-over-year, home prices are up 3.6% 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 52% this month. Florida Subprime severities were lower at 86%. New York Subprime severities decreased to 84%; and Nevada Subprime severities decreased to 68%.

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