Mortgage Market Monitor June 2019

Monthly Commentary


Market Update

In the midst of an economic expansion that started 10 years ago and now stands as the country’s longest on record, a dovish pivot by the Fed that signaled more accommodative monetary policies and lower path for rates managed to further invigorate investors’ reach for risk and yield during June. Both risk-free and risk assets benefited as stocks surged to record levels with the S&P Index touching new highs while 10-year treasuries dipped momentarily below 2% during the month. Just as it has done throughout most of this year, the Non-Agency RMBS market remained steady. Spreads traded mostly flat with firm sponsorship from real money accounts. However, some signs of weakness due to negative convexity concerns appeared in premium dollar-priced bonds. Certain segments of credit risk transfer and prime jumbo traded wider from the dramatic rally in rates, which brought mortgage rates down and led to expectations of increased prepay speeds. As with the start of most summers, secondary selling was limited and bid list volumes tapered heading into quarter-end, amounting to just 4.0 billion. Trace trading activity also declined month-over-month from 15.9 billion to 10.5 billion where dealers ended slightly longer by 32 million.

The primary market continued to grow at a brisk pace as well as broaden with new issuers and new types of collateral. June saw the first post-crisis HELOC transaction come to market with Towd Point’s TPHT 2019-HE1. Non-QM issuance has already surpassed its total from 2018 with five deals totaling 1.6 billion during the month and included a new entrant into the space, Angelo Gordon. Meanwhile in credit risk transfer, Fannie Mae introduced three changes to the structure of its CAS transactions: 20 year legal final maturity compared with 12.5 year in old structure, optional call moved down from 10 years to 7 years, and reduction in credit enhancement of B1 first loss tranche to 25 bps from 50bps. The following is a full list of new issues in Non-Agency for June.

Non-QM

  • Angelo Gordon's first ever non-QM issuance, 393mm GCAT 2019-NQM1, which contains 47% CDFI (Community Development Financial Institution) loans that are exempt from ATR and risk retention rules: AAA rated A1 (29.45% CE/2.02 WAL) 95/n, AA/AAA rated A2 (22.90% CE/2.02 WAL) 120/n, A/AA rated A3 (12.00% CE/2.02 WAL) 135/n, BBB/A rated M1 (7.10% CE/2.97 WAL) 190/n
  • First transaction of the year and third overall from Ellington 227mm EFMT 2019-1: AAA rated A1 (30.20% CE/2.18 WAL) 100/n, AA/AA+ rated A2 (23.55% CE/2.18 WAL) 115/n, A/A+ rated A3 (11.35% CE/2.18 WAL) 130/n, BBB/BBB+ rated M1 (6.70% CE/4.09 WAL) 175/n, BB/BBB- rated B1 (3.25% CE/4.09 WAL) 260/n
  • New Residential’s 305mm NRZT 2019-NQM3: AAA rated A1 (30.00% CE/2.68 WAL) 92/n, AA rated A2 (22.55% CE/2.68 WAL) 110/n, A rated A3 (14.15% CE/2.68 WAL) 120/n, BBB rated M1 (8.95% CE/5.18 WAL) 155/n, BB rated B1 (5.05% CE/5.18 WAL) 280/n, B rated B2 (2.75% CE/5.18 WAL) 5.875% yield
  • 298mm RMLT 2019-2 from Seer Capital: AAA rated A1 (35.20% CE/2.04 WAL) 110/n, AA/AAA rated A2 (28.80% CE/2.04 WAL) 125/n, A/AA rated A3 (16.80% CE/2.04 WAL) 140/n, BBB/A rated M1 (10.55% CE/4.08 WAL) 215/n, BB/BBB rated B1 (5.65% CE/4.08 WAL) 300/n, B/BB- rated B2 (2.05% CE/4.08 WAL) 6.00% yield
  • Caliber only made available the super senior A1 from its third non-QM deal of the year 378mm COLT 2019-3: AAA rated A1 (27.80% CE/2.15 WAL) 90/n

Prime Jumbo

  • 296mm prime jumbo PSMC 2019-1 from AIG: AAA rated 4.0% PT A1 (15.00% CE/4.41 WAL) 1-00 bk FN4.0, AAA rated 4.0% FCF A3 (15.00% CE/2.48 WAL) 1-14 bk DW4.0, AAA rated 4.0% LCF A12 (15.00% CE/10.19 WAL) 125/n
  • JPMorgan’s 636mm JPMMT 2019-5: AAA rated 4.0% PT A3 (12.00% CE/4.97 WAL) 1-00bk Jul UMBS4.0, AAA rated 4.0% FCF A4 (12.00% CE/2.78 WAL) 2-00bk Jul DW4.0, AAA rated 4.0% LCF A5 (12.00% CE/11.54 WAL) 135/n, AAA rated L+90 A11 (12.00% CE/4.97 WAL) 90dm, Aa2/AAA rated Snr Support A15 (6.00% CE/4.97 WAL) 1-18bk Jul UMBS4.0

Non-performing/Re-performing

  • Mill City’s first RPL issuance of the year 440mm MCMLT 2019-1: AAA/Aaa rated A1 (40.25% CE/3.56 WAL) 90/n
  • Unrated 380mm HAMR 2019-RPL1 containing RPL collateral as well as revolving period from Headlands Asset Management: NOTES (38.54% CE/2.89 WAL) 4.00% yield, 2.9 WAL

Investor

  • Onslow Bay’s 384mm OBX 2019-INV2 with agency eligible investor collateral: AAA rated 4.0% PT A5 (20.00% CE/4.73 WAL) 145/n, AAA rated L+95 A11 (20.00% CE/4.73 WAL) 100dm, Aa1/AAA rated 4.0% senior support A25 (10.00% CE/4.73 WAL) 160/n
  • Blackstone's inaugural investor transaction backed by 66.5% non-agency/33.5% agency eligible collateral, 264mm FWD 2019-INV1: AAA rated A1 (27.05% CE/2.72 WAL) 100/n, AA/AA+ rated A2 (20.75% CE/2.72 WAL) 120/n, A rated A3 (10.20% CE/2.72 WAL) 130/n, BBB rated M1 (5.90% CE/5.06 WAL) 170/n

HELOC

  • First post-crisis deal backed by home-equity lines of credit issued by Cerberus’ Towd Point, 278mm TPHT 2019-HE1: AAA rated A1 (31.90% CE/2.24 WAL) 105dm

Credit Risk Transfer

  • 281mm STACR 2019-HRP1, last of the HRP series from Freddie Mac and includes HARP collateral funded between Jan 1, 2009 and Dec 31, 2018: A+/A- rated M1 (6.20% CE/1.03 WAL) 75dm, BBB+/BBB- rated M2 (3.50% CE/3.47 WAL) 140dm, BB+/BB- rated M3 (2.25 % CE/7.23 WAL) 225dm, B+/B rated B1 (1.25% CE/9.81 WAL) 405dm, unrated B2 (0.25% CE/10.02 WAL) 950dm
  • Fannie's fourth deal of the year 1,031mm CAS 2019-R04, which is backed by high LTV collateral: BBB-/BBB+ rated 2M1 (3.65% CE/1.61 WAL) 75dm, B/BB rated 2M2 (1.35% CE/5.41 WAL) 210dm, unrated 2B1 (0.25% CE/6.98 WAL) 525dm

Collateral Performance

Changes to serious delinquencies were mixed across sectors in June. Prime delinquencies increased by 7 basis point to 3.43%; Alt-A delinquencies decreased by 2 basis points to 8.34%; Option Arm delinquencies decreased by 22 basis points to 15.96% and Subprime delinquencies decreased by 10 basis points to 18.37%.

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 and are now at or below pre-Maria levels. Prime delinquencies increased 7 basis points to 10.92%, Alt-A delinquencies declined 33 basis points to 23.65% and Subprime delinquencies declined 40 bps to 33.74%.

Voluntary prepayments increased across sectors this month. Prime CRRs came in at 20.4%, up 461 basis points month-over-month; Alt-A CRRs were 17.4%, up 418 basis points month-over-month; Option Arm CRRs were 10.1%, up 60 basis points month-over-month and Subprime CRRs were 7.4%, up 99 basis points month-over-month. Month-over-month CDRs were mixed across sectors. Prime CDRs decreased by 9 basis points to 0.90%; Alt-A CDRs increased by 22 basis points to 2.62%; Option Arm CDRs increased by 15 basis points to 4.84%, and Subprime CDRs increased by 6 basis points to 4.16%.

Case-Shiller futures predict home prices will increase 1.0% annually during the next three years. Year-over-year, home prices are up 2.5% 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 51% this month. Florida Subprime severities were flat at 86%. New York Subprime severities declined to 85%; and Nevada Subprime severities decreased to 73%.

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