NEW YORK--(BUSINESS WIRE)--Following the private label RMBS market’s peak in 2007 and the ensuing credit crisis, non-agency securitizations of newly originated collateral have focused almost exclusively on prime jumbo loans. Until recently, many consumers with marred credit or unique circumstances have been either barred from accessing housing credit, or have found the process extremely challenging for a number of reasons, including large institutional risk aversion and tighter credit standards influenced by regulation.
The tide appears to be turning, however, as Kroll Bond Rating Agency (KBRA) has observed the re-emergence of more than a dozen non-prime mortgage origination programs that intend to use securitization as a funding source. To date, KBRA is aware of at least four securitization sponsors that have accessed the private label securities (PLS) market across nine issuances, two of which include rated offerings.
In the publication, KBRA presents and discusses the defining characteristics, strengths and weaknesses of five primary sub-categories of expanded or non-prime origination including Expanded Prime, Prior Credit Event, Alternative Documentation, Business Purpose, and Foreign National.
Among the broader discussion, KBRA notes that originations of such non-prime loans under sound compliance with the Ability-To-Repay (ATR) rules are expected to exhibit better performance than 2005-2007 vintage loans with similar credit parameters due to strengthened underwriting. Loans to borrowers with recent prior credit events will, in some cases, exhibit increased default risk relative to those which lack similar credit disposition activity, even where credit scores may indicate little differentiation. KBRA notes that particular attention should be paid to differences between non-prime and non-QM, as the two designations are different and are not necessarily linked. However, KBRA notes that where there is overlap between the two, the risk of higher loss severities can increase significantly due to greater potential likelihood of a borrower raising a claim that the originator did not appropriately consider the borrower’s ability to repay, and the greater potential success rates of such claims.
Additional detail is available in our full report.
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).
