Mortgage Market Monitor April 2019

Monthly Commentary


Market Update

After wrapping up a strong first quarter, Non-Agency RMBS continued to trade with a positive tone and extended their gains throughout April. With a patient Fed staying on the sidelines and economic data pointing to signs of green shoots, Non-Agencies rallied alongside broader risk assets and ended the month generically tighter by 5-15 bps. While spreads have recovered a significant portion of the decompression suffered during the fourth quarter, they still sit 10-20 bps away from post-crisis tights reached during the middle of last year. As a disproportionate number of holders looked to buy than sell, a key obstacle during the month was a lack of supply. Monthly bid list volume slumped 33% month-over-month to just 2.8bn and came close to supplanting the 2.4bn multi-year low seen last July. Moreover, small sizes put out for bid dominated the calendar. Bonds that had less than 5mm current face only comprised a third of April’s supply, but they represented more than three quarters of the entire number of line items. With overall light secondary selling, accounts shifted their focus to inventories and left dealers net shorter for the third straight month by 564mm.

The primary market remained active over the course of April and introduced deals with a different mix of collateral falling outside of QM designation. As an example, JPMorgan entered into new territory with its first non-QM deal, CHASE 2019-ATR1. The transaction essentially contains loans that are prime jumbo quality but are categorized as non-QM because of a technicality in income documentation. Altogether, new issuance picked up to 10.7bn from 6.9bn in the previous month.

Non-QM/Expanded QM/Expanded Prime

  • JPMorgan’s 441mm CHASE 2019-ATR1: Aaa/AAA rated 4.0% PT A3 (12.00% CE/4.83 WAL) 1-16bk May FN4.0, Aaa/AAA rated 4.0% FCF 75% A4 (12.00% CE/2.77 WAL) 1-14bk May DW4.0, Aaa/AAA rated 4.0% LCF 25% A5 (12.00% CE/11.01 WAL) 150/n, Aaa/AAA rated L+95 Floater A11 (12.00% CE/4.83 WAL) 95dm, Aa1/AAA rated senior support A15 (6.00% CE/4.83 WAL) 2-04bk May Fn4.0
  • PIMCO’s inaugural transaction backed by seasoned non-QM 383mm BRAVO 2019-1: AAA/AAA rated FCF 75% A1C (32.73% CE/3.00 WAL) 100/n, A/A+ rated mezz A3 (4.80% CE/14.86 WAL) 155/n
  • 388mm OBX 2019-EXP1 expanded prime deal from Annaly’s Onslow Bay backed by two groups of collateral: fixed collateral group AAA rated 1A3 (20.00% CE/3.03 WAL) 120/n, AAA rated senior mezz 1A3 (11.30% CE/3.03 WAL) 140/n. ARM collateral AAA rated L+95 Floater FCF 80% 2A1A (20.00% CE/2.30 WAL) 95dm, AAA rated L+95 Floater LCF 20% 2A1B (20.00% CE/4.39 WAL) 125dm, AAA rated L+115 Floater senior mezz 2A2 (11.30% CE/2.72 WAL) 125dm
  • Second non-QM of the year from Deephaven 362mm DRMT 2019-2: AAA rated A1 (37.75% CE/ 2.00 WAL) 95/n, AA/AAA rated A2 (31.30% CE/ 2.00 WAL) 105/n, A/AA+ rated A3 (19.05% CE/2.00 WAL) 115/n, BBB/A+ rated M1 (12.35% CE/4.09 WAL) 145/n, BB/BBB rated B1 (7.10% CE/4.09 WAL) 225/n, B-/B+ rated B2 (2.10% CE/4.09 WAL) 5.75% yield

Prime Jumbo

  • JPMorgan issued 387mm JPMMT 2019-3: Aaa/AAA rated 4.0% PT A3 (12.00% CE/4.94 WAL) 1-08bk May FN4.0, Aaa/AAA rated 4.0% FCF 75% A4 (12.00% CE/2.79 WAL) 1-12bk May DW4.0, Aaa/AAA rated 4.0% LCF 25% (12.00% CE/11.40 WAL) 135/n, Aaa/AAA rated L+95 floater A11 (12.00% Ce/4.94 WAL) 95dm, Aa1/AAA rated snr support A15 (6.00% CE/4.94 WAL) 1-28bk May FN4.0

Non-performing/Re-performing

  • 595mm NRZT 2019-2 backed by seasoned performing and re-performing collateral from New Residential: AAA rated A1 (28.10% CE/2.95 WAL) 90/n
  • Towd Point’s second “HY” series issuance 966mm TPMT 2019-HY2 consisting of performing and re-performing post-reset hybrid ARMs: Aaa/AAA rated L+100 Floater A1 (11.00% CE/2.70 WAL) 92dm, A1 rated L+160 Floater M1 (6.20% CE/9.01 WAL) 160dm, Baa2 rated L+190 Floater M2 (3.90% CE/10.23 WAL) 190dm, Ba2 rated L+225 Floater B1 (2.50% CE/11.48 WAL) 215dm, B1 rated L+225 Floater B2 (1.45% CE/12.69 WAL) 240dm
  • Unrated 92mm BOMFT 2019-RN3 from Bayview containing mix of non-performing and re-performing loans: A1 (41.37% CE/1.55 WAL) 4.00% yield
  • Pretium’s unrated NPL deal 402mm PRET 2019-NPL2: A1 (32.06% CE/1.44 WAL) 3.875% yield, A2 (21.63% CE/2.99 WAL) 6.00% yield
  • Unrated 458mm PRPM 2019-2 backed by performing, re-performing, and non-performing collateral and issued by Preston Ridge: A1 (32.00% CE/2.13 WAL) 4.00% yield, A2 (19.52% CE/ 2.99 WAL) 5.50% yield
  • Citi’s 264mm rated RPL CMLTI 2019-RP1: Aaa/AAA rated A1 (38.00% CE/3.99 WAL) 93/n, Aa2/AA rated M1 (32.40% CE/9.54 WAL) 140/n, A3/A- rated M2 (26.00% CE/10.95 WAL) 170/n, Baa3/BBB- rated M3 (19.95% CE/12.60 WAL) 200/n
  • Third overall RPL issuance from MetLife 448mm MST 2019-1: AAA rated PT A1 (15.55% CE/4.70 WAL) 105/n, AAA rated FCF A1A (32.00% CE/3.44 WAL) 80/n, AA rated M1 (12.00% CE/12.66 WAL0 150/n

Credit Risk Transfer

  • Fannie's third deal of the year 857mm CAS 2019-R03: BBB+/A rated 1M1 (3.70% CE/1.50 WAL) 75dm, B+/BBB- rated 1M2 (1.25% CE/6.02 WAL) 215dm, unrated 1B1 (0.50% CE/9.94 WAL) 410dm
  • Second high LTV CRT transaction of the year from Freddie Mac 615mm STACR 2019-HQA2: BBB/BBB rated M1 (3.50% CE/1.49 WAL) 70dm, BB/B+ rated M2 (1.50% CE/5.44 WAL) 205dm, unrated B1 (0.60% CE/9.89 WAL) 410dm, unrated B2 (0.10% CE/9.97 WAL) 1125dm

Collateral Performance

Changes to serious delinquencies declined across sectors in April. Prime delinquencies decreased by 6 basis point to 3.49%; Alt-A delinquencies decreased by 17 basis points to 8.74%; Option Arm delinquencies decreased by 33 basis points to 16.46% and Subprime delinquencies decreased by 43 basis points to 18.87%.

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 72 basis points to 11.26%, Alt-A delinquencies declined 87 basis points to 25.03% and Subprime delinquencies declined 65 bps to 35.03%.

Voluntary prepayments increased across sectors this month. Prime CRRs came in at 13.3%, up 186 basis points month-over-month; Alt-A CRRs were 11.2%, up 96 basis points month-over-month; Option Arm CRRs were 9.4%, up 238 basis points month-over-month and Subprime CRRs were 5.9%, up 52 basis points month-over-month. Month-over-month CDRs also increased across all sectors. Prime CDRs increased by 27 basis points to 1.26%; Alt-A CDRs increased by 24 basis points to 2.57%; Option Arm CDRs increased by 88 basis points to 4.78%, and Subprime CDRs increased by 1 basis point to 4.10%.

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 3.0% 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 higher at 53% this month. Florida Subprime severities were lower at 83%. New York Subprime severities increased to 90%; and Nevada Subprime severities increased to 70%.

 

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