The proportion of impaired non-QM loans fell to a pandemic low in December

Unqualified mortgage performance improved in December as the percentage of impaired loans fell despite a recurrence of COVID-19 cases, according to a dv01 report.

Non-QM loans classified as impaired – either defined as criminal or in a change plan – fell 30 basis points to 10.3% between November and December. This is nearly 46% less than June's 19.2% depreciation rate.

The report includes a change in logic to "work around the lack of consistency in COVID-19 change reports." As a result, the depreciation curve looks significantly different from previous dv01 reports.

"Looking ahead, we see equally positive trends from January 2021 onwards. Data reported by the Mortgage Bankers Association shows that forbearance has declined again this month after remaining unchanged for several weeks," the report said by Wei Wu, Vadim Verkhoglyad and Lindsey Boyer said. "We are monitoring whether these results affect the performance of non-QM or credit risk transfers."

According to the MBA, 2.7 million borrowers were on forbearance plans, or 5.38% of the service providers' portfolios, as of Jan. That is a decrease of 5.53% as of January 3rd.

However, the indulgence share of private label stocks and portfolio loans (including all non-QM loans) rose to 9.16% from 8.77% on Jan. 3.

Black Knight's data showed that 690,000 private label mortgages were lenient, with $ 163 billion in principal as of Jan. 26. This compares to 673,000 loans with a UPB of $ 160 billion on Jan. 5th.

However, the rate of new impairment on non-QM loans rose to a six-month high of 0.6% in December. This is likely due to the fact that the self-employed borrower-run businesses that make up a large portion of the loan type's customer base have been negatively impacted by the COVID-19 security measures put in place by state and local governments.

The 30-day or more default rate for non-QM mortgages rose nearly 40 basis points from November to 4.8% in December. However, this rate is five percentage points below the pandemic peak of 9.8% in May.

The proportion of modified non-QM loans fell to its lowest level since the beginning of the pandemic from 6.1% in November to 5.3% in December.

The percentage of impaired mortgages in CRT transactions fell 25 basis points to 4.8% in December compared to the previous month.

New depreciation on CRT mortgages was 0.27% in December, which is in line with pre-pandemic levels, dv01 said.

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