The performance of non-qualified mortgages improved in December, as the share of impaired loans declined despite a resurgence in COVID-19 cases, a dv01 report said.
Non-QM loans considered impaired — defined as either delinquent or in a modification plan — fell 30 basis points between November and December to 10.3%. This is nearly 46% lower than June's impairment rate of 19.2%.
The report includes a change in logic to “circumvent the lack of consistency among COVID-19 modification reporting.” As a result, the impairment curve looks materially different than
"Looking to the future, there are equally positive trends emerging from January 2021 forbearance activity. Data reported by the Mortgage Bankers Association shows that forbearance activity has resumed declining this month after several weeks of it remaining unchanged," the report from Wei Wu, Vadim Verkhoglyad and Lindsey Boyer said. "We watch to see if these findings carry through to non-QM or credit risk transfer performance."
There were 2.7 million borrowers in forbearance plans as of Jan. 24, or 5.38% of servicers' portfolios, according to the MBA. That is down from 5.53% as of Jan. 3.
However the share of private-label securities and portfolio loans (which would include all non-QM) in forbearance grew to 9.16% from 8.77% as of Jan. 3.
Black Knight's data showed
However, the rate of new impairments of non-QM loans rose to a six-month high in December to 0.6%. That’s likely because the businesses run by self-employed borrowers, who make up a large portion of the loan type’s customer base, were negatively impacted by COVID-19 safety measures put in place by state and local governments.
The 30-day or more delinquency rate for non-QM mortgages increased nearly 40 basis points in December from November to 4.8%. But that rate is five full percentage points below the pandemic peak of 9.8% in May.
The share of modified non-QM loans fell to its lowest point since the pandemic started to 5.3% in December, from 6.1% in November.
The share of impaired mortgages in CRT transactions fell to 4.8% in December, down 25 bps from the previous month.
New impairments of CRT mortgages were 0.27% for December, which equates to pre-pandemic levels, dv01 said.
