Non-Agency Delinquencies Fall Again – Still Room for Improvement Serious delinquencies among non-Agency residential mortgages continue marching downward during the first half of 2021 but remain elevated relative to their pre-pandemic levels. Our analysis of more than two million loans held in private-label mortgage-backed securities found that the percentage of loans at least 60 days past due fell again Read More.. https://riskspan.com/non-agency-delinquencies-fall-again-still-room-for-improvement/ Serious delinquencies among non-Agency residential mortgages continue marching downward during the first half of 2021 but remain elevated relative to their pre-pandemic levels. Our analysis of more than two million loans held in private-label mortgage-backed securities found that the percentage of loans at least 60 days past due fell again in May across vintages and FICO bands. While performance differences across FICO bands were largely as expected, comparing pre-crisis vintages with mortgages originated after 2009 revealed some interesting distinctions. The chart below plots serious delinquency rates (60+ DPD) by FICO band for post-2009 vintages. Not surprisingly, these rates begin trending upward in May and June of 2020 (two months after the economic effects of the pandemic began to be felt) with the most significant spikes coming in July and August – approaching 20 percent at the low end of the credit box and less than 5 percent among prime borrowers. Since last August’s peak, serious delinquency rates have fallen most precipitously (nearly 8 percentage points) in the 620 – 680 FICO bucket, compared with a 5-percentage point decline in the 680 – 740 bucket and a 4 percentage point drop in the sub-620 bucket. Delinquency rates have come down the least among prime (FICO > 740) mortgages (just over 2 percentage points) but, having never cracked 5 percent, these loans also had the shortest distance to go. Serious delinquency rates remain above January 2020 levels across all four credit buckets – approximately 7 percentage points higher in the two sub-680 FICO buckets, compared with the 680 – 740 bucket (5 percentage points higher than in January 2020) and over-740 bucket (2 percentage points higher). So-called “legacy” vintages (consisting of mortgage originated before the 2008-2009 crisis) reflect a somewhat different performance profile, though they follow a similar pattern. The following chart plots serious delinquency rates by FICO band for these older vintages. Probably because these rates were starting from a relatively elevated point in January 2020, their pandemic-related spike were somewhat less pronounced, particularly in the low-FICO buckets. These vintages also appear to have felt the spike about a month earlier than did the newer issue loans. Serious delinquency rates among these “legacy” loans are considerably closer to their pre-pandemic levels than are their new-issue counterparts. This is especially true in the sub-prime buckets. Serious delinquencies in the sub-620 FICO bucket actually were 3 percentage points lower last month than they were in January 2020 (and nearly 5 percentage points lower than their peak in July 2020). These differences are less pronounced in the higher-FICO buckets but are still there. Comparing the two graphs reveals that the pandemic had the effect of causing new-issue low-FICO loans to perform similarly to legacy low-FICO loans, while a significant gap remains between the new-issue prime buckets and their high-FICO pre-2009 counterparts. This is not surprising given the tightening that underwriting standards (beyond credit score) underwent after 2009. Interested in cutting non-Agency performance across any of several dozen loan-level characteristics? Contact us for a quick, no-pressure demo.