Mortgage Market Monitor October 2019

Monthly Commentary

November 21, 2019

Market Update

Secondary selling in Non-Agency had been largely subdued through the first three quarters of the year, averaging just over four billion per month and crossing over five billion in only two instances. October saw that trend continue and finished with 4.0 billion in bid list supply, a decline of 9% from September. Although trading activity as reported by Trace saw a slight increase from 9.8 billion to 10.4 billion month-over-month, the year-to-date total of 105 billion is noticeably down from the same point last year, which had 128 billion. Outside of legacy holders periodically putting out larger sized lists as they continue to exit what remains of their portfolios, widespread selling pressures have not materialized at this point even in the face of heightened macro volatility. The dynamic over the past several years that saw bonds transfer from fast money to real money accounts has put Non- Agency bonds in the hands of long-term holders and has helped spreads maintain a narrow range, including this month where most subsectors ended unchanged.

The primary market took center stage during October and registered 15 billion in total issuance, which marked the busiest month of the year and kept Non-Agency RMBS on the path of a net growing asset class. It was a particularly active month in prime jumbo 2.0 with 2.7 billion in new issues, while Non-QM added 1.7 billion from four deals to push the sector’s record year of issuance to 17 billion. Despite the heavy calendar, deals continued to see strong execution and investor appetite. For instance, Angel Oak priced the AAA rated A1 from its fifth Non-QM transaction of the year, AOMT 2019-5, at 88/n. In comparison, the tightest spread reached during the year on a similar AAA tranche was 80/n from another Angel Oak deal at the end of May.

Credit Risk Transfer

  • Fannie Mae’s 1.29bn CAS 2019-R06 off high LTV collateral: BBB-/A- rated 2M1 (3.65% CE/1.57 WAL) 75dm, B/BB+ rated 2M2 (1.30% CE/5.27 WAL) 210dm, unrated 2B1 (0.25% CE/6.96 WAL) 375dm
  • Freddie Mac’s 589mm STACR 2019-DNA4: BBB+ rated M1 (3.00% CE/1.67 WAL) 70dm, BB/BB- rated M2 (1.10% CE/6.16 WAL) 195dm, B rated B1 (0.60% CE/10.01 WAL) 270dm, unrated B1 (0.10% CE/10.01 WAL) 625dm
  • Fannie Mae’s second deal of the month 998mm CAS 2019-R07 off low LTV collateral: BBB-/BBB+ rated 1M1 (3.25% CE/1.89 WAL) 77dm, B/BB rated 1M2 (1.15% CE/5.69 WAL) 210dm, unrated 1B1 (0.25% CE/6.97 WAL) 340dm

Non-QM/Expanded Prime

  • Seer Capital’s 262mm non-QM RMLT 2019-3: AAA rated A1 (36.80% CE/1.96 WAL) 110/n, AA rated A2 (30.50% CE/1.96 WAL) 140/n, A rated A3 (18.90% CE/1.96 WAL) 150/n, BBB rated M1 (12.35% CE/4.04 WAL) 190/n, BB rated B1 (6.90% CE/4.04 WAL) 245/n, B rated B2 (2.65% CE/4.04 WAL) 5.625% yield
  • Annaly’s 465mm OBX 2019-EXP3 backed by expanded prime collateral and split into two group: Fixed group AAA rated 3.5% PT 1A8 (20.00% CE/3.32 WAL) 155/n, AAA rated 3.5% senior mezz 1A9 (12.60% CE/3.32 WAL) 165/n. ARM group AAA rated L+90 FCF 2A1A (20.00% CE/1.97 WAL) 90dm, AAA rated L+90 LCF 2A1B (20.00 % CE/4.75 WAL) 125dm, AAA rated L+90 PT 2A1 (20.00% CE/2.52 WAL) 100dm, AAA rated L+110 senior mezz 2A2 (12.60% CE/2.52 WAL) 110dm
  • 443mm SGR 2019-3 from SG Capital: AAA rated A1 (32.30% CE/2.16 WAL) 103/n, AA/AA+ rated A2 (25.25% CE/2.16 WAL) 120/n, A/A+ rated A3 (12.20% CE/2.16 WAL) 140/n, BBB/BBB+ rated M1 (6.90% CE/4.08 WAL) 195/n, BB/BB+ rated B1 (3.35% CE/4.08 WAL) 250/n
  • Angel Oak’s fifth non-QM deal of the year 353mm AOMT 2019-5: AAA rated A1 (38.10% CE/2.02 WAL) 88/n, AA rated A2 (31.70% CE/2.02 WAL) 100/n, A rated A3 (17.85% CE/2.02 WAL) 120/n, BBB-/BBB rated M1 (10.10% CE/4.09 WAL) 170/n, BB rated B1 (6.10% CE/4.09 WAL) 235/n
  • Invictus Capital’s 681mm VERUS 2019-4: AAA rated 2.642% A1 (33.30% CE/2.06 WAL) 95/n, AAA rated 3.142% A1B (33.30% CE/2.06 WAL) 110/n, AA rated A2 (27.35 % CE/2.06 WAL) 115/n, A rated A3 (15.55% CE/2.06 WAL) 130/n, BBB-/BBB rated M1 (8.20% CE/4.00 WAL) 160/n, BB rated B1 (5.00% CE/4.00 WAL) 225/n

Prime Jumbo

  • AIG's prime jumbo 397mm PSMC 2019-2: AAA rated 3.5% PT A1 (15.00% CE/4.38 WAL) 0-26 bk FNCL3.5, AAA rated 3.5% FCF A3 (15.00% CE/2.46 WAL) 1-30 bk DW3.5, AAA rated 3.5% LCF A12 (15.00% CE/10.15 WAL) 160/n
  • Redwood's prime jumbo 362mm SEMT 2019-4: AAA rated 3.5% PT A1 (15.00% CE/4.99 WAL) 0.24 bk UMBS3.5, AAA rated 3.5% FCF A4 (15.00% CE/2.83 WAL) 1-30 bk DW3.5, AAA rated 3.5% LCF A7 (15.00% CE/11.49 WAL) 155/n, AAA rated SNR MEZZ A19 (5.00% CE/4.99 WAL) 1-12 bk UMBS3.5
  • Woodward Capital Management’s inaugural issuance 351mm RCKT 2019-1 consisting of jumbo and agency eligible loans originated and serviced by Quicken: AAA rated 3.5% PT A1 (15.00% CE/4.95 WAL) 1-00 bk UMBS3.5, AAA rated 3.5% FCF A3 (15.00% CE/2.82 WAL) 2-08 bk DW3.5, AAA rated 3.5% LCF A5 (15.00% CE/11.36 WAL) 170/n, Aa1/AAA rated 3.5% SNR SUPP (5.50% CE/4.95 WAL) 1-20 bk UMBS3.5, A1/AA rated sub B1A (4.00% CE/9.66 WAL) 155/n, A2/A+ rated sub B2A (3.00% CE/9.66 WAL) 165/n
  • JPMorgan's third prime transaction off of high LTV collateral 427mm JPMMT 2019-LTV3: AAA rated 3.5% PT A3 (20.00% CE/4.60 WAL) 1- 04bk UMBS3.5, AAA rated 3.5% FCF A4 (20.00% CE/2.56 WAL) 2-10bk DW3.5, AAA rated 3.5% LCF A5 (20.00% CE/10.74 WAL) 165/n, AAA rated L+85 A11 (20.00% CE/4.60 WAL) 100dm, Aa1/AAA rated SNR SUPP A15 (12.00% CE/4.60 WAL) 1-16bk UMBS3.5
  • 638mm JPMMT 2019-8 from JPMorgan: AAA rated 3.5% PT A3 (12.00% CE/4.96 WAL) 1-00bk UMBS 3.5, AAA rated 3% PT A3A (12.00% CE/4.96 WAL) 0-24bk UMBS 3.0, AAA rated 3.5% FCF A4 (12.00% CE/2.77 WAL) 2-04bk DW 3.5, AAA rated 3% FCF A4A (12.00% CE/2.77 WAL) 1-16bk DW 3.0, AAA rated 3.5% LCF A5 (12.00% CE/11.52 WAL) 160/n, AAA rated 3% LCF A5A (12.00% CE/11.52 WAL) 130/n, AAA rated L+85 A11 (12.00% CE/4.96 WAL) 90dm, Aa2/AAA rated SNR SUPP A15 (6.00% CE/4.96 WAL) 1-12bk UMBS 3.5
  • 271mm GSMBS 2019-PJ3 from Goldman Sachs: AAA rated 3.5% PT A1 (15.00% CE/4.71 WAL) 3.202% yield, AAA rated 3.5% FCF A6 (15.00% CE/2.66 WAL) 2.952% yield, AAA rated 3.5% LCF A8 (15.00% CE/10.86 WAL) 3.291% yield
  • AIG’s second prime deal during the month 299mm PSMC 2019-3: AAA rated 3.5% PT A1 (15.00% CE/4.35 WAL) 0-26 bk FNCL3.5, AAA rated 3.5% FCF A3 (15.00% CE/2.43 WAL) 1-30bk DW3.5, AAA rated 3.5% LCF A12 (15.00% CE/10.11 WAL) 145/n
  • JPMorgan’s 394mm CHASE 2019-1 collateralized by temporary QM loans falling under the GSE patch: AAA rated 3.5% PT A3 (12.00% CE/4.95 WAL) 1-06bk UMBS 3.5, AAA rated 3.5% FCF A4 (12.00% CE/2.76 WAL) 2-08bk DW3.5, AAA rated LCF A5 (12.00% CE/11.54 WAL) 155/n, AAA rated L+85 A11 (12.00% CE/4.95 WAL) 100dm, AAA rated SNR SUPP A15 (6.00% CE/4.95 WAL) 1-18bk UMBS 3.5

Non-performing/Re-performing

  • New Residential's 796mm NRZT 2019-5 backed by seasoned performing/re-performing mortgages from called legacy deals: AAA rated A1B (35.60% CE/2.49 WAL) 88/n
  • 464mm CIM 2019-R2 rated RPL from Chimera where IG mezz priced after the AAA rated A1 was quietly placed: AA/Aa2 rated M1 (33.35% CE/7.72 WAL) 140/n, A3 rated M2 (27.25% CE/8.98 WAL) 160/n, Baa3 rated M3 (22.75% CE/10.32 WAL) 190/n
  • Lone Star's unrated NPL 482mm VOLT 2019-NPL7: A1A (46.05% CE/1.35 WAL) 3.20% yield, A1B (36.09% CE/2.92 WAL) 4.00% yield, A2 (29.45% CE/2.96 WAL) 5.25% yield
  • 386mm MCMLT 2019-GS1 rated RPL where Goldman Sachs is sponsor/risk retainer and loans are from Mill City: AAA rated A1 (45.75% CE/3.46 WAL) 95/n, Aa3 rated M1 (35.50% CE/9.00 WAL) 130/n
  • Lone Star quickly followed up with another unrated NPL 714mm VOLT 2019-NPL8 where majority of collateral are relevers: A1A (43.97% CE/1.37 WAL) 3.300% yield, A1B (32.76% CE/3.01 WAL) 4.125% yield, A2 (26.45% CE/3.01 WAL) 5.250% yield
  • Towd Point's rated 600mmTPMT 2019-HY3 backed by hybrid RPL collateral: AAA rated A1A (13.77% CE/2.52 WAL) 95dm, AAA rated A1B (11.00% CE/7.37 WAL) 107dm, Aa2 rated A2 (8.50% CE/8.12 WAL) 120dm, Baa3 rated M2 (3.15% CE/10.60 WAL) 160dm, Ba2 rated B1 (1.90% CE/11.93 WAL) 197dm, B2 rated B2 (0.90% CE/13.30 WAL) 227dm
  • Angelo Gordon’s unrated 154mm GCAT 2019-3 containing a mix of seasoned re-performing, performing, and non-performing loans: A1 (34.13% CE/1.62 WAL) 3.375% yield
  • 403mm LMAT 2019-GS7 unrated RPL from Goldman Sachs: A1 (27.50% CE/2.45 WAL) 3.25% yield
  • 397mm CMSC 2019-RPL9 unrated RPL from Credit Suisse: A1 (32.50% CE/2.55 WAL) 3.25% yield
  • 231mm CMLTI 2019-E unrated RPL from Citi: A1 (34.00% CE/2.43 WAL) 3.25% yield

Investor

  • Starwood's 370mm STAR 2019-INV1 all underwritten with DSCR: AAA rated A1 (38.35% CE/2.53 WAL) 110/n, AA rated A2 (30.15% CE/2.53 WAL) 135/n, A rated A3 (17.70% CE/2.53 WAL) 140/n, BBB rated M1 (12.45% CE/5.12 WAL) 165/n, BB rated B1 (6.95% CE/5.12 WAL) 225/n
  • 203mm VISIO 2019-2 from RCO: AAA rated A1 (34.15% CE/3.47 WAL) 110/n, AA rated A2 (28.05% CE/3.47 WAL) 130/n, A rated A3 (16.50% CE/3.47 WAL) 145/n BBB rated M1 (10.50% CE/6.07 WAL) 165/n, BB rated B1 (5.35% CE/6.07 WAL) 230/n
  • 366mm FSMT 2019-1INV issued by Flagstar and backed by agency eligible investor collateral: AAA rated 3.5% PT A3 (15.00% CE/4.64 WAL) 0- 24 bk UMBS3.5, AAA rated L+95 A11 (15.00% CE/4.64 WAL) 100dm, AAA rated 3.5% PT A13 (15.00% CE/4.64 WAL) 0.24 bk UMBS3.5, Aa2/AAA rated SNR SUPP A15 (11.20% CE/4.64 WAL) 1-12 bk UMBS3.5, Aa3/AA+ rated sub B1A (9.85% CE/10.65 WAL) 180/n, A2/A+ rated sub B2A (6.50% CE/10.65 WAL) 195/n

Collateral Performance

The percentage of serious delinquent legacy loans declined for Subprime and Option-Arm sectors but increased for Prime and Alt-A sectors in October. Prime delinquencies increased by 3 basis points to 3.12%; Alt-A delinquencies increased by 7 basis points to 7.92%; Option Arm delinquencies decreased by 11 basis points to 15.18% and Subprime delinquencies decreased by 9 basis points to 18.08%.

In non-qm mortgages, the percentage of serious delinquencies rose across sectors in October. Prime non-qm delinquencies increased by 16 basis points to 0.34%; Alt-A non-qm delinquencies rose 28 basis points to 1.36%; and Subprime non-qm delinquencies increased 48 basis points to 3.65%.

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 137 basis points to 11.12%, Alt-A delinquencies decreased 45 basis points to 21.73% and Subprime delinquencies decreased by 1 bps to 37.51%.

Voluntary prepayments were mixed across sectors this month. Prime CRRs came in at 28.1%, up 457 basis points month-over-month; Alt-A CRRs were 21.4%, down 45 basis points month-over-month; Option Arm CRRs were 10.0%, up 12 basis points month-over-month and Subprime CRRs were 8.4%, down 64 basis points month-over-month. Month-over-month CDRs were also mixed across sectors. Prime CDRs decreased by 6 basis points to 1.48%; Alt-A CDRs decreased by 55 basis points to 3.08%; Option Arm CDRs decreased by 6 basis points to 4.69%, and Subprime CDRs decreased by 13 basis points to 3.96%.

Case-Shiller futures predict home prices will increase 1.0% annually during the next three years. Year-over-year, home prices are up 2.0% 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 lower at 43% this month. Florida Subprime severities were lower at 81%. New York Subprime severities increased to 81%; and Nevada Subprime severities decreased to 71%.

 

 

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