Mortgage Market Monitor July 2017

Monthly Commentary

Market Update

Although July was one of the lighter volume months in the Non-Agency RMBS market, the themes that have been consistent since the start of 2017 persisted. With volatility in the broader markets almost non-existent, spreads across all RMBS subsectors continued to grind tighter throughout July. Even with spreads through post-crisis tights, investor demand remained robust as the asset class shows fundamental strength with continued improving housing data. The highlight list of July was the 552mm/11 line item GSE list which saw aggressive bidding, especially by hedge funds on the bonds with rep and warrant optionally, and all but one traded to end accounts. July ended with 12.2bn of volume, 5bn of secondary bid list supply and dealers net shorter by 285mm leaving spreads slightly tighter across the capital structure.

In the primary market, Fannie priced 1.35bn CAS 2017-C05 tighter than guidance – 1M1’s (Baa3/BBB, 2.9% CE, 1.03 WAL) at 55dm, 1M2’s (B3/B/, 1% CE, 5.48 WAL) at 220dm, 1B1’s (NR, .5% CE, 10 WAL) at 360dm. Invictus priced its 236mm VERUS 2017-2 right around guidance - AAA rated A1 $99.99378 80n/2.421% yield, AA rated A2 $99.99673 95n/2.571% yield, A rated A3 $99.99749 115n/2.771% yield, BBB- rated B1 $99.99288 175n/3.679% yield.

Collateral Performance

Serious delinquencies declined across all sectors July. Prime decreased by 7 basis points to 6.01%; Alt-A delinquencies decreased by 5 basis point to 13.20%; Option Arm delinquencies decreased by 13 basis points to 19.63% and Subprime delinquencies decreased by 30 basis points to 24.05%. Roll rates from current status to delinquency continue to be held in at very low levels.

Voluntary prepayments were mixed across sectors this month. Prime CRRs came in at 17.2%, down 264 basis points month-over-month; Alt-A CRRs were 15.3%, down 165 basis points month-over-month; Option Arm CRRs were 9.8%, up 22 basis points month-over-month and Subprime CRRs were 8.4%, up 33 basis points month-over-month. Month-over-month changes in CDRs were mixed as well. Prime CDRs decreased by 20 basis points to 1.71%; Alt-A CDRs increased by 18 basis points to 4.05%; Option Arm CDRs increased by 44 basis points to 5.35% and Subprime CDRs decreased by 5 basis points to 6.06%.

Case-Shiller futures indicate a slowing recovery in home prices, predicting home prices will rise one to two percent annually during the next four years. Year-over-year, home prices are up 5.7% across Case-Shiller’s 20 major city index. At the national level, changes in severities were mixed across all sectors. At the state level, California Subprime severities were up slightly to 45% this month. Florida Subprime severities increased to 83%. New York Subprime severities increased to 89%; and Nevada Subprime severities were declined to 68%.

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