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Report: Non-QM borrowers are weathering COVID-19 stresses

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An early look at securitized residential home-loan performance amid the coronavirus pandemic indicates encouraging trends thus far in impairment levels of non-qualified mortgages, according to a new report from investor analytics firm Dv01.

The firm stated in its latest COVID-19 performance report Wednesday that non-QM mortgage borrowers (primarily self-employed and owners of investment properties) in March had levels of impaired payments below that of the pace of jobless claims. Dv01 says that an indication that the non-QM borrowers of prime jumbo, investor and self-employed home property loans were largely able to meet their obligations in the first month of the pandemic crisis.

“The initial trends are a positive sign for investors because self-employed borrowers are presumably at a higher risk of significant negative business impact due to COVID-19, and because investor properties could suffer from a loss of income for both borrowers and tenants,” wrote Vadim Verkhoglyad, the principal analyst behind the report.

The data from New York-based Dv01, based on daily loan performance the fintech gathers for investor client research, shows that through March 31 total payment impairments was 1.1% due to both modifications and payment delinquencies. That compares to a more than 6% increase in the unemployment rate at that time when an initial 10 million jobless claims had been filed through March 28, the report stated.

“This is quite different than mortgage performance during the credit crisis, when mortgage delinquencies increased one-for-one with the unemployment rate and the delinquency rate in private mortgages rose by several times more than unemployment.”

It is also substantially less than what many observers see for the conventional home-loan market, where an avalanche of forbearance requests is expected.

Dv01 note, of course, that crisis-era private-label ABS loans were primarily “alt-A” and subprime loans, compared to the current crop of non-QM loans that have low loan-to-value ratios and high-prime borrower credit scores.

Dv01's sampling of loans is small — just 20,000 loans issued since 2018 with a current balance of $1.8 billion — but represents an early look at figures that will be included in forthcoming servicer and trustee reports. The loans examiened by Dv01 had a weighted average FICO of 738, a WA loan-to-value ratio of 66.7% and an average balance of $390,000. Despite the limited pool, "we still view our conclusions as signficant points of insight on the state of the market," the company stated.

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