Second lien and home equity line of credit residential mortgage-backed securitization issuance so far in 2026 is the most through this time of the year since the Great Financial Crisis, Bank of America Securities said in its weekly securitization report.
Issuance as of July 24 of this segment of non-agency was $24 billion. This is close to last year's total for the entire year, $29 billion. B of A expects $41 billion of second lien/HELOC securitization in total for 2026.
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Potential for further growth in seconds
The B of A Securities analysts believe potential for growth in closed-end second/HELOC issuances remains going forward because of
From the low-rate 2020 and 2021 origination vintages, a possible $2 trillion of CES/HELOC from conforming mortgage with the rate under 4% and the current loan-to-value ratio of around 40%. The analyst calculated the combined LTV with a second or home equity loan attached would be under 75%.
HELOCs, in particular, are normally the purview of banks. But the report points out the growing presence of non-bank originators. Plus, credit unions are increasing their production of, and holdings in, these loans.
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Spreads on AAA seconds versus non-QM
The AAA-rated tranche of new second lien securitizations is now priced in the similar range as non-qualified mortgage at between 120 basis points and 130 basis points.
The lower rated tranches, those between AA and BBB, "still see a notable spread pickup versus non-QM, especially since non-QM credit curves are near its tightest historical levels," the report said.
The AAA through BBB tranches on the second lien and HELOC securitizations are attractive for their lower delinquency rates versus non-QM, as well as the higher excess spread. "Thus despite their subordinate lien status, the lower part of closed-end second capital stack is better protected, while offering greater spread pickups," the report said.
Across the spectrum, non-agency issuance of all types last week was $53 billion, with year-to-date total of $145 billion. For non-QM, so far in 2026, $62 billion of securities have been issued. This was up
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Why agency MBS spreads widened last week
Speaking of spreads, last week's spike in the 10-year Treasury on Thursday impacted those for agency paper, the B of A weekly report for this product noted.
Last Thursday,
As a result, spreads widened by 5 basis points week-over-week.
The analysts who authored the agency MBS report warned spreads have started to slowly leak wider. They expect this trend can persist because of a combination of factors:
- the worsening geopolitical environment;
- an underweight duration outlook;
- extension risk fears;
- continued rich valuations; and
- the absence of any real programmatic buying
"As such at 113 basis points, we are turning basis underweight, from neutral," the analysts said. "Over the longer term, a buy on dip opportunity may emerge but the risks appear elevated in the shorter term."
The gradual widening of spreads may eventually present MBS investors with a buy-on-dip opportunity to add basis. But given "the slow leak," the B of A analysts don't see such an opportunity materializing near term.
