Non-QM securitization record signals secondary market shift

The year isn't over yet but gross issuance of bonds backed by loans made outside the standard qualified-mortgage definition has already broken the annual record, according to Bank of America Securities.

Issuance of this type has climbed to $82 billion, beating out 2025's annual record of $80 billion. This keeps it on track to reach $100 billion by year end, according to the bank's estimates.

The move beyond prior-year levels officially establishes that the secondary market for non-QM loans is particularly hot this year, and calls for stakeholders to maintain perspective as they make strategic decisions about how, when and whether to compete.

Notable growth in a larger market

Non-QM activity is influential within the context of the private-label residential mortgage-backed securities market, representing almost 44% of $187 billion gross issuance so far in 2026, but it's by no means the only game in town.

That said, it is the only private label RMBS loan-product type Bank of America tracks that has grown this year, with most other categories running behind their 2025 totals. Credit risk transfer, jumbo 2.0, single family residential, resi transition, non- and re-performing loan issuance all have declined.

The two other exceptions to this trend outside of non-QM are home equity and agency-eligible investor loans, which have already matched last year's levels at $30 billion and $10 billion, respectively.

While non-QM issuance stands out among private-label securities, it is still nowhere close to rivaling that seen in the agency MBS market, which has dominated single-family mortgage securitization since the Great Financial Crisis.

Guggenheim Securities, which also estimates non-QM issuance will total $100 billion this year, expects that will represent just 7% of what the annual dollar figure for government-sponsored enterprise mortgage securitization will be.

Risk-reward considerations

Investment-grade non-QM has been popular with structured finance investors but the sector's attractiveness has shifted since mid-2025, Mark Tecotzky, co-chief investment officer at Ellington Financial, said in an earnings call last month.

"You've seen credit spreads tighten across the board. That's on investment-grade corporates. It's on high-yield bonds. It's in CRT. It's in non-QM investment-grade bonds," he said.

Also, total non-QM impairments have generally risen with some exceptions, according to a recent dv01 report.

Within the sector, credit score tolerances can vary widely, with an average as high as 746 in one recent securitization with alternative documentation standards and some lenders allowing FICOs as low as 550 for certain loans.

Some analysts advise watching debt-service coverage ratio loans, which are based more on an analysis of the property's cash-flows than the borrower's personal income, for signs of liquidity concerns, noting that they view these as likely to surface in this non QM sector first.

Secondary market liquidity notably evaporated in the non-QM market during the early days of the pandemic, rebounding later with what were initially tighter guidelines. So it's a risk some investors have been wary of as market conditions have changed more recently.

In the second quarter of this year, there was "continued demand for well-structured non-QM credit, but the markets also moved through periods of caution," Sreeniwas Prabhu, CEO of Angel Oak Mortgage, said last month during the real-estate investment trust's earnings call.