Early indicators of non-qualifying mortgage (non-QM) performance for December suggest that the spike in loan impairments in November — previously attributed to the month ending on a Sunday — were not aberrant.
Those gains have not reversed in December data, according to a new report by dv01, a loan-level data analytics platform owned by Fitch Solutions, which first reported the spike in November loan impairments as “striking and concerning.”
An impairment refers to any loan that is delinquent or under modification, signaling a reduction in the collectible cash flow of a securitized loan pool. The non-QM impairment rate was around 6% in November, about five times higher than pre-pandemic levels.
Total impairments rose again in December, to 7.2%, according to dv01’s first-look estimates of non-QM loan performance last month.
“Notably, once again they didn’t reverse any of the increases from November’s Sunday month-end effect,” the report said, referring to the artificial inflation of delinquency rates that occurs when the last calendar day of the month falls on a Sunday, since loan payments received that day aren’t processed until the following business day.
Overall impairments rose 0.8% from October to November, with the deterioration “driven by a combination of elevated new impairment formation and a sharp collapse in cure and made-payment rates,” said dv01 earlier this month.
Although December did not reverse November’s spike in loan impairments, new impairment formation slowed in December at the same time cure and payment-made rates recovered.
Three-month impairments rose nine basis points monthly to 3.7%, while new 30-day impairments fell 32 basis points to 1.4%. As a distinct impairment track, first-time non-QM delinquencies that led to new 30-day impairments fell 11 basis points monthly to 0.5% after rising by 18 basis points in November.
Total delinquencies, meanwhile, rose five basis points to 6.8%. Significant improvement was made in delinquency cure rates over the month, which rose 640 basis points to 25.1%. Payment-made rates rose 540 basis points to 48.3%.
Complementing a recovery in cure rates and payment-made rates last month were falling roll rates, as fewer non-QM borrowers advanced into later stages of delinquency.
Roll rates for non-QM loans between one month and two months of delinquency fell 350 basis points to 23.7%, while roll rates for mortgages between two months and three months of delinquency fell 660 basis points to 37.6%. Roll rates for loans more than 90 days past due declined 240 basis points to 79.8%.
Serious delinquencies across the non-QM sector averaged 2.9% at the end of November, according to Fitch, up 0.38% from a year ago.
