Performance Report: Non-QM and Second Lien Mortgages, June 2025

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Quick Insights

Non-QM: Cure Rates Drop, Delinquency Rise

After a relatively stable spring, June brought a sharp reversal in Non-QM performance:

• Cure and Made Payment rates dropped 210 and 320 bps, dragging 3-month averages materially lower.

• Impairments jumped 25 bps MoM, mirroring last year’s seasonal mid-year deterioration.

Non-QM Prepayment Model: Tracking Back to Expectations

• Prepayments edged up slightly to 13.8 CPR, with S-curve behavior holding steady.

• Model performance has improved, with most doc types now showing near-zero deviation from predicted prepay. Only VOE loans exhibit persistent divergence.

Second Liens (HELOC & CES): Seasoning Drives Trends, Disaster Regions Recovering

• Closed-End Seconds (CES):

  • Impairments continue to climb, but mostly due to natural seasoning.

  • Cure and Made Payment trends now mirror Non-QM, suggesting borrower-level stress, not lien prioritization.

  • Impairment rates in disaster-hit regions like FL/GA/SC are finally falling, helping to offset seasonal pressures.

• HELOC

  • After a bumpy first year, impairments have stabilized and First-Time DQs are declining.

  • Cure rates are the highest among all asset classes, driven by better credit quality and a 180-day charge-off policy.

  • Charge-offs have normalized near 0.5 CDR, and regional trends are gradually recovering post-hurricanes.