July Update: Non-QM Outperforms; Second Liens Show Seasoning Trends

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Quick Insights

Non-QM: Strongest Improvement Since Jan-2024

• Cure and Made Payment rates surged +210 bps and +220 bps, reversing June’s decline.
• Overall Impairments dropped 15 bps MoM, the sharpest adjusted improvement in 18 months.
• Divergence by attributes: Below 700 FICO borrowers improved, while Above 80 LTV loans worsened for a second consecutive month.

Non-QM Prepayment: Burnout Pressures Persist

• Prepayments edged down to 13.9 CPR, with burnout flattening S-curves.
• FICO prepayment gaps collapsed to the narrowest spread in sector history.
• DSCR loans remain the slowest-paying doc type, while CPA/P&L loans now lead in prepayments.

Second Liens: Seasoning, High Cure Rates, Regional Recovery

• Closed-End Seconds (CES):
  • Impairments continue to climb, but natural seasoning is the main driver.
  • Cure and Made Payment rates rose in July for the first time since March.
  • Midwest/PA and New England/NY Tri-State drove the latest impairment increases.
• HELOC
  • Cure rates remain the highest across mortgage products, though easing slightly.
  • First-Time New Impairments stayed low despite volatility in overall reporting.
  • Charge-offs stabilized around 0.5 CDR, with recoveries still lagging.