Mortgage Market Monitor November 2019

Monthly Commentary


Market Update

In November, optimism about a “phase one” trade resolution between the U.S. and China took center stage and drove broader risk assets higher. The positive market sentiment buoyed major stock indexes to new highs throughout the month as the S&P 500 hit 3,153 and DJIA hit 28,164. Later in the month, the trade war momentum took an unexpected turn after Trump said it was unlikely a “phase one” deal would be signed before the end of 2019. However, even after giving up some of their gains, the S&P 500 and DJIA still managed to put up strong numbers, posting 3.6% and 2.57% gains, respectively. The UST 10yr also experienced price volatility in November: yields started the month at a 1.71%, sold off to 1.943% around midmonth and then rallied to end at 1.82%.

RMBS technicals rather than trade war rhetoric had more of an impact on the direction of spreads in November. In legacy RMBS, technicals weighed on the secondary market where trading could be characterized as “choppy” throughout the month, leaving spreads 5-10 bps wider. Two major technical dynamics pushed spreads wider - investors were fatigued from heavy new issue supply and dealers, who had gotten long risk in late October and early November, were less active bidders and focused on reducing below investment grade balance sheet risk ahead of the year-end slowdown. Meanwhile, in the credit risk transfer market, lighter trading volumes, low volatility and healthy demand kept on-the-run spreads flat to five bps tighter. Elevated demand down the capital structure from real money investors in search of yield continued to keep the differential between M2 and B1 spreads near all-time tights: 125 B1/M2 HTLV and 108 B1/M2 LLTV. Trading volumes as reported by Trace were down from 10.8 billion to 8.9 billion and BWIC supply only reached 3.4 billion, leaving dealers net longer by 312 million on the month.

New issuance in November was once again heavy across next generation non-agency products as issuers made one last push to issue a deal before the holiday slowdown. Non-QM/expanded prime continued to have the most active primary calendar in terms of both deals and volume. Cascade Financial came to market with the inaugural manufactured housing securitization, CMAT 2019-MH1, which was collateralized by newly originated loans and priced in line with guidance. A more comprehensive list of the deals issued in November is below.

Non-QM/Expanded Prime

  • 267mm EFMT 2019-2: AAA rated A1 (29.65% CE/2.12 WAL) 100/n, AA/AA+ rated A2 (22.95% CE/2.12 WAL) 115/n, A/A+ rated A3 (11.30% CE/2.12 WAL) 130/n, BBB/BBB+ rated M1 (6.60% CE/4.03 WAL) 180/n, BB/BB+ rated B1 (3.20% CE/4.03 WAL) 240/n
  • 298mm NRZT 2019-NQ5: AAA rated A1s (25.9% CE/2.78 WAL) at 95n, AA rated A2s (20% CE/2.78 WAL) at 110n, A rated A3s (11% CE/2.78 WAL) at 130n, BBB rated M1s (7.2% CE/5.1 WAL) at 170n, BB rated B1s (4% CE/5.1 WAL) at 230n and B rated B2s (2.2% CE/5.1 WAL) at 5% yield.
  • 481mm DRMT 2019-4: AAA rated A1 (38.30% CE/1.95 WAL) EDSF+100, AA rated A2 (31.55% CE/1.95 WAL) EDSF+115, A rated A3 (18.70% CE/1.95 WAL) EDSF+125, BBB rated M1 (11.95% CE/4.03 WAL) 175/n, BB rated B1 (6.65% CE/4.03 WAL) 225/n, B- rated B2 (1.95% CE/4.03 WAL) 4.875% yield
  • 223mm GFMT 2019-H1: AAA rated A1 (26.80% CE/2.16 WAL) 100/n, AA rated A2 (20.50% CE/2.16 WAL) 120/n, A rated A3 (11.30% CE/2.16 WAL) 130/n, BBB rated M1 (6.25% CE/4.00 WAL) 175/n, BB rated B1 (2.90% CE/4.00 WAL) 230/n, B rated B2 (0.75% CE/4.00 WAL) 5.00% yield
  • 309mm GCAT 2019-NQM3: AAA rated A1 (24.15% CE/2.49 WAL) 105/n, AA rated A2 (20.90% CE/2.49 WAL) 120/n, A rated A3 (8.95% CE/2.49 WAL) 140/n, BBB rated M1 (4.90% CE/4.01 WAL) 185/n, BB rated B1 (2.50% CE/4.01 WAL) 235/n
  • 511mm AOMT 2019-6: AAA rated A1s (37.65% CE/2.03 WAL) at 95n, AA rated A2s (30.85% CE/2.03 WAL) at 115n, A rated A3s (17.35% CE/2.03 WAL) at 125n, BBB rated M1s (9.9% CE/4.08 WAL) at 180n and BB rated B1s (6.1% CE/4.08 WAL) at 235n
  • 534mm VERUS 2019-INV3: AAA rated 2.692% A1 (38.75% CE/2.32 WAL) 105/n, AAA rated 3.192% A1B (38.75% CE/2.32 WAL) 120/n, AA/AA+ rated A2 (30.80% CE/2.32 WAL) 130/n, A rated A3 (18.45% CE/2.32 WAL) 145/n, BBB-/BBB+ rated M1 (11.70% CE/4.00 WAL) 170/n, BB-/BB+ rated B1 (6.00% CE/4.00 WAL) 215/n, B+/BB- rated B2 (5.00% CE/4.00 WAL) 4.75% yield
  • 411mm HOF 2019-3: AAA rated A1s (35.9% CE/2.57 WAL) at 105n, AA rated A2s (29.25% CE/2.57 WAL) at 125n, A rated A3s (17.35% CE/2.57 WAL) at 140n, BBB rated M1s (11.30% CE/5.22 WAL) at 195n, B rated B1s (6.45% CE/5.22 WAL) at 245n
  • 305mm BHLD 2019-3: AAA rated A1s (37.9% CE/1.98 WAL) at 105n, AA rated (29.75% CE/1.98 WAL) at 130dm and A rated A3s (18% CE/1.98 WAL) at 145dm
  • 330mm BRAVO 2019-NQM2: AAA rated A1s (25.10% CE/1.95 WAL) at 105n, AA rated A2s (20.10% CE/1.95 WAL) at 125n, A rated A3s (12.35% CE/1.95 WAL) at 140n, BBB rated M1s (8.45% CE/3.73 WAL) at 185n, BB rated B1s (5.65% CE/3.73 WAL) at 235n and B rated B2s (3.00% CE/3.73 WAL) at 4.75% yield

Re-performing/Non-performing

  • 697mm VOLT 2019-NPL9: A1A (43.50% CE/1.68 WAL) 3.35% yield, A1B (32.18% CE/2.97 WAL) 4.125% yield, A2 (25.44% CE/2.97 WAL) 5.00% yield
  • 3.7bn TPMT 2019-4: AAA rated A1 (34.50% CE/4.13 WAL) 103/n, AAA/Aa2 rated A2 (27.75% CE/10.58 WAL) 135/n, A+/A3 rated M1 (19.95% CE/12.72 WAL) 160/n, BBB+/Baa3 rated M2 (15.15% CE/15.03 WAL) 185/n
  • 334mm PRPM 2019-GS1: A1 (38.00% CE/2.28 WAL) 3.50% yield, A2 (20.00% CE/2.38 WAL) 4.75% yield
  • 198mm AMIP 2019-2: Unrated A1s (35.5% CE/1.66 WAL) at 3.5% yield
  • 447mm VOLT 2019-NPL10: A1A (44.52% CE/1.19 WAL) 3.45% yield, A1B (33.56% CE/2.45 WAL) 4.00% yield, A2 (27.29% CE/2.92 WAL) 4.75% yield
  • 178mm STWH 2019-NPB2: A1 (38.24% CE/1.74 WAL) 3.50% yield, A2 (29.53% CE/2.97 WAL) 5.00% yield
  • 171mm AJAMX 2019-F: AAA rated A1 (35.55% CE/3.52 WAL) 133/n, AA rated A2 (28.25% CE/7.00 WAL) 3.526% yield, A rated A3 (25.25% CE/7.00 WAL) 3.8% yield
  • 533mm NRZT 2019-6: AAA rated A1B (35.6% CE/2.49 WAL) at 88n

Credit Risk Transfer

  • 432mm STACR 2019-HQA4: BBB- rated M1s (3.25% CE/1.74 WAL) at 77dm, B+ rated M2s (1.15% CE/6.46 WAL) at 205dm, unrated B1s (.6% CE/10.02 WAL) at 295dm and unrated B2s (.10% CE/10.02 WAL) at 660dm
  • 96mm CAS 2019-HRP1: B rated M2s (.45% CE/2.2 WAL) at 215dm and unrated B1s (.05% CE/6.6 WAL) at 925dm

Prime Jumbo

  • 397mm SEMT 2019-5: AAA rated 3.5% PT A1 (15.00% CE/5.01 WAL) 0-26 bk UMBS3.5, AAA rated 3.5% FCF A4 (15.00% CE/2.82 WAL) 1-30 bk DW3.5, AAA rated 3.5% LCF A7 (15.00% CE/11.58 WAL) 135/n, AAA rated SNR MEZZ A19 (5.00% CE/5.01 WAL) 1-10 bk UMBS3.5
  • 607mm WFMBS 2019-4: AAA rated 3.5% PT A1 (15.00% CE/4.97 WAL) 0-28 bk UMBS3.5, AAA rated 3% PT A2 (15.00% CE/4.97 WAL) 0-28 bk UMBS3, AAA rated 3.5% FCF A3 (15.00% CE/2.81 WAL) 1-30 bk DW3.5, AAA rated 3.5% LCF A5 (15.00% CE/11.47 WAL) 150/n, Aa1/AAA rated SNR MEZZ A17 (5.00% CE/4.97 WAL) 1-12 bk UMBS3.5
  • 360mm FSMT 2019-2: AAA rated 3.5% PT A2 (15.00% CE/4.95 WAL) 1-14 bk UMBS3.5, AAA rated 3.5% FCF A3 (15.00% CE/2.78 WAL) 2-16 bk DW3.5, AAA rated 3.5% LCF A9 (15.00% CE/11.46 WAL) 155/n, AA+/AAA rated SNR SUPP A11 (5.85% CE/4.95 WAL) 0-18 vs A2
  • 680mm JPMMT 2019-9: AAA rated 3.5% PT A3 (12.00% CE/4.97 WAL) 1-08 bk UMBS3.5, AAA rated 3% PT A3A (12.00% CE/4.97 WAL) 1-00 bk UMBS3, AAA rated 3.5% FCF A4 (12.00% CE/2.77 WAL) 2-14 bk DW3.5, AAA rated 3.5% LCF A5 (12.00% CE/11.56 WAL) 150/n, AAA rated 3.0% LCF A5A (12.00% CE/11.56 WAL) 130/n, AAA rated 3.5% FCF A6 (12.00% CE/2.0 WAL) 120/n, AAA rated 3.5% Fltr A11 (12.00% CE/4.97 WAL) 150dm, Aa2/AAA rated SNR MEZZ A15 (6.00% CE/4.97 WAL) 1-24 bk UMBS3.5
  • 337mm PFMT 2019-1: Aaa rated 3% cpn SSNR PT (15% CE/4.95 WAL) 0-26 bk UMBS 3.0s, Aaa rated 3.0% cpn SSNR FCF (15% CE/2.75 WAL) 1-12 bk DW 3.0s, Aaa rated 3% cpn SSNR LCF (15% CE/11.57 WAL) at 135n, Aa1 rate d 3% cpn SNR SUP (5.45% CE/4.95 WAL) 1-10 bk UMBS 3.0s

Manufactured Housing

  • 156mm CMAT 2019-MH1: Unrated A1s (20% CE/3.71 WAL) at 225n and unrated Ms (10% CE/4.95 WAL) at 425n Fix and Flip
  • 214mm LHOME 2019-RTL3: A1 (20.00% CE/2.38 WAL) 3.90% yield, A2 (10.00% CE/2.68 WAL) 4.375% yield, M (5.00% CE/2.68 WAL) 5.75% yield

Prime Seasoned

  • 426mm BRAVO 2019-2: AAA rated A3 (13.05% CE/3.75 WAL) 125/n

Collateral Performance

The percentage of serious delinquent legacy loans declined for Subprime, Option-Arm and Alt-A sectors but increased for the Prime sector in November. Prime delinquencies increased by 2 basis points to 3.01%; Alt-A delinquencies decreased by 2 basis points to 7.70%; Option Arm delinquencies decreased by 21 basis points to 14.98% and Subprime delinquencies decreased by 16 basis points to 17.79%.

In non-qm mortgages, the percentage of serious delinquencies rose across sectors in October. Prime non-qm delinquencies increased by 4 basis points to 0.38%; Alt-A non-qm delinquencies rose 19 basis points to 1.55%; and Subprime non-qm delinquencies increased 39 basis points to 4.04%.

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 declined from beginning of 2018 to their current pre-Maria levels. Prime delinquencies decreased 65 basis points to 10.47%, Alt-A delinquencies decreased 21 basis points to 21.52% and Subprime delinquencies increased by 17 bps to 37.68%.

Voluntary prepayments increased across sectors this month. Prime CRRs came in at 32.6%, up 752 basis points month-over-month; Alt-A CRRs were 27.4%, up 673 basis points month-over-month; Option Arm CRRs were 11.4%, up 143 basis points month-over-month and Subprime CRRs were 10.3%, up 232 basis points month-over-month. Month-over-month CDRs were mixed across sectors. Prime CDRs decreased by 10 basis points to 1.36%; Alt-A CDRs increased by 28 basis points to 3.34%; Option Arm CDRs increased by 17 basis points to 4.89%, and Subprime CDRs increased by 83 basis points to 4.80%.

Case-Shiller futures predict home prices will increase 1.0% annually during the next three years. Year-over-year, home prices are up 2.1% 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 46% this month. Florida Subprime severities were higher at 85%. New York Subprime severities increased to 82%; and Nevada Subprime severities decreased to 57%.

 

 

Media Attachments


This material is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time, without notice. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. The information contained herein may include preliminary information and/or "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any forward-looking statements or opinions in this document. Any opinions expressed herein are current only as of the time made and are subject to change without notice. Past performance is no guarantee of future results. © 2019 TCW