Record issuance of non-QM securities in the first quarter

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Non-qualified mortgage-backed securities record issuance in the first quarter puts it on pace to top full-year volume predictions, according to a Keefe, Bruyette & Woods report.

Securitized non-QM loans totaled $5.7 billion for the first quarter, approximately half of 2018's total volume and "easily the most active quarter in the market since the first transaction was priced in 2015," the report by Eric Hagen, Bose George and Thomas McJoynt-Griffith said.

Estimates for 2019 non-QM securitization volume range from $14 billion to nearly $20 billion.

Among the recent transactions was JPMorgan Chase's first non-QM issuance. The deal is for $440.5 million, with 542 loans that have an average credit score of 772 and an average loan-to-value ratio of 72%; most of the loans were classified as non-QM because they were underwritten using tax transcripts rather than signed tax returns.

"We view JPM's offering as a positive development for the non-QM market," the KBW analysts said. "JPM is the first large depository to issue a non-QM securitization. We think the bank's support for the asset class sends a strong signal about the growth outlook, credibility and strength of both the collateral and the investor support behind the non-QM securitization market."

In addition, there were four real estate investment trusts — New Residential, Starwood, Ellington Financial and Redwood Trust — that sponsored securitizations in the past year.

Starwood did two non-QM deals with Impac Mortgage Holdings since the pair entered into a 12-month $600 million agreement last June, with a third expected during the second quarter.

Then there are two other companies, Western Asset Mortgage Capital and MFA, which hold over $1 billion of non-QM loans on balance sheet.

"All-in, we think nonrecourse, term financing through a securitization structure is a very attractive financing option to support this asset," KBW said.

Then if the qualified mortgage patch, which covers all conforming mortgages, is allowed to expire in early 2021, that should create "meaningful growth" for non-QM securitization, the analysts added.

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RMBS Qualified Mortgages Underwriting Private-label Keefe, Bruyette & Woods JPMorgan Chase Impac Mortgage Holdings New Residential Investment Corp. Redwood Trust