Impairments in non-qualified mortgage (non-QM) loans were 5.7% higher than pre-pandemic levels and double pandemic-era lows at the end of 2025, a sign of credit weakness building across the sector, according to a new report on non-QM issuance.
Total impairments declined five basis points last month after spiking 80 basis points in November, says dv01, a data analytics platform owned by Fitch Solutions, which released its non-QM performance report for December on Monday.
The sector-wide non-QM impairment rate stood at around 7.1% to end 2025, with the total delinquency rate around 6.8%, dv01 data shows. An impairment refers to any loan that is delinquent or under modification.
“The past two years represent the toughest stretch of performance in the sector’s history even as the broader mortgage universe was setting record-low delinquency rates in March 2023 and more recently in June 2024,” the report read. “December saw another month of weakness.”
The spike in November had been attributed to the month ending on a Sunday, meaning loan payments received that day would not be processed until the following business day. But the non-QM sector has consistently struggled to reverse Sunday month-end effects usually dismissed as temporary blips on credit analysts’ radar.
“As anticipated, the non-QM market reversed virtually none of November’s massive impairment increase, which was driven by the Sunday month-end effect,” said the report, calling it “the fifth consecutive time where the non-QM universe recouped very little of the supposedly temporary impairment increases brought on by the Sunday month-end effect.”
Last year provided the market with a unique chance to consider this trend, as 2025 had two Sunday month-ends occur within a short period (August and November).
While the broader mortgage market typically recovers 70% to 90% of the initial impairment surge following a Sunday month-end within three to four months, according to dv01, “we have yet to see the sector recover any of the August 2025 month-end surge either.”
Cure and made-payment rates, however, rose 6.4% and 5.5% respectively in December, recovering from the “sharp collapse” that those rates experienced the prior month.
“Cure and made payments are perhaps the only bright spots in what has otherwise been dismal non-QM performance in 2025,” said dv01. The company’s analysis covered about 175,000 active non-QM loans issued since 2018, with a total unpaid balance exceeding $78 billion.
The loans have a weighted-average credit score of 744, weighted-average loan-to-value ratio of 67.4%, weighted-average mortgage rate of 5%, weighted-average debt-to-income ratio of 31.8% and an average balance of around $401,000.
Overall new impairments and first-time delinquencies declined in December but remain “materially higher” than October levels, the company noted. Total delinquencies fell four basis points, accounting for most of the impairment decline last month.
Originations from 2023 and 2024 are driving “nearly all of the recent impairment surge” across the sector, though improvements in the 2024 vintage continued through the second half of 2025 after elevated levels of delinquency at issuance.
Collateral attributes, however, provide a more nuanced account of sector-wide non-QM performance last month.
Impairments among borrowers with credit scores over 780, for example, recovered about half of the impairment increase they posted in November to remain largely unchanged over the past year, noted dv01. Impairments on below-700 credit score borrowers were more than 1.6% higher over the year and nearly 5% higher than December 2023 levels last month.
A similar bifurcation is emerging among loan-to-value (LTV) ratios, December’s report shows. Loans with LTVs exceeding 80% had an impairment rate around 12% in December, up from 5% in December 2023. Loans with LTVs below 80% have impairment rates around 7.5% or lower.
Impairments fell across all income documentation types in December, according to dv01, with the exception of 12-month bank statement loans.
