KBRA Releases Research – Non-QM Default Study: A Decade of Insights

NEW YORK--(BUSINESS WIRE)--KBRA releases its non-qualified mortgage (NQM) RMBS default study, analyzing over 475,000 loans representing $216.7 billion in original balance from nearly 600 NQM transactions issued between 2015 and April 2025. This report examines performance dynamics across more than 15 key loan attributes—including vintage, CLTV, credit score, documentation type, DSCR underwriting, occupancy, loan purpose, product type, and borrower reserves—and identifies how layered risk factors impact credit outcomes.

Key Takeaways

• KBRA’s analysis focused on more than 475,000 loans from nearly 600 NQM transactions issued since 2015. The weighted average (WA) cumulative default rate for NQM loans stands at 3.8%, while realized credit losses remain minimal, averaging just 0.03%.
• Of the 16,757 defaulted loans, approximately 6,606 have experienced losses—mostly from forbearance or capitalized amounts on active or prepaid loans with an average severity of 1.2% and 0.6%, respectively. Just over 300 loans incurred meaningful losses due to involuntary liquidation, with an average severity of 26.5%.
• Non-prime credit profiles that included borrowers with prior credit events have shown meaningfully higher default rates than those without, ranging between approximately 8% and 10%.
• The default study reviews the performance distributions across a comprehensive set of more than 15 loan characteristics including vintage, CLTV, credit score, documentation type, DSCRs, occupancy, loan purpose, and liquid reserves.
• Deal vintages from 2019 and 2020 have exhibited the highest in default rates due to the COVID-19 pandemic. Loans from 2022 and 2023 deal vintages reflect the next highest, when excluding COVID defaults from all vintages. To date, cumulative defaults for 2019 and 2020 vintages stand at approximately 5.5% and 5%, respectively, excluding COVID defaults. This compares with 2022 and 2023 vintages at around 4% and 4.1%, respectively.
• Key default drivers (such as CLTV and credit score) show marked variation in default rates across their distribution ranges. Loans with CLTVs of 85% or higher exhibited default rates of 5.5% to date, while those with CLTVs of 65%-70% show defaults of 4.1%. Meanwhile, borrowers with FICO scores below 660 have default rates of nearly 10%, while those above 760 have default rates below 2%.
• KBRA observes that loans with full income documentation (Full Doc) exhibit notably lower default rates compared to those with alternative documentation (Alt Doc), which have, on average, defaulted at rates 12.9% higher than Full Doc loans. Within the Alt Doc category, performance tends to be more uniform, with DSCR, bank statement, and P&L/CPA letter loans exhibiting similar default behavior. Notable exceptions include written verification of employment (WVOE) and asset-underwritten loans, which demonstrate comparatively stronger performance.
• Across many loan attributes, variation in default rates between cohorts is narrower than might be expected. This is largely due to lenders’ efforts to manage risk layering by requiring compensating factors for loans with higher-risk attributes. An example where this effect is particularly evident is the comparable performance of investor-occupied and owner-occupied loans. In part, this similarity is driven by differences in required FICO scores and CLTV ratios between the two occupancy types.

Click here to view the report.

Related Publications

• 2025 Mortgage Policy Summit Recap
• RMBS Trend Watch: Deconstructing Non-Prime Risk Layers
• U.S. RMBS Credit Indices: April 2025
• KBRA-Rated RMBS Exposure to Los Angeles Wildfires

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1009732