Seasonal factors staged a monthly recovery in headline new impairment rates for non-qualified mortgage (non-QM) loans in March, though performance continues to deteriorate across the sector, analysts warn.

New impairment rates, which reflect the share of non-QM loans that transitioned from current to delinquent or were otherwise under modification from the previous month, fell 36 basis points from February to 1.13% in March, according to data analytics platform dv01. The rate of first-time new impairments also declined in March to 0.42% from 0.6% in February, hitting their lowest level since early 2023.

“Moreover, the metric progressively improved throughout 2025 and has returned to pre-COVID levels, making it the only attribute that remains positive despite overall performance deteriorating,” dv01 stated in its monthly performance report for the non-QM sector.

Sustained improvement in first-time new impairment rates suggests “some improved underwriting is translating to better initial performance on new originations, and that higher delinquencies are driven by borrowers with checkered payment histories.”

However, the company hedged what it described as “a brief respite from weaker performance” with the mention of March being “seasonally the best performing month,” reiterating the pessimism it registered in February. The serious delinquency rate rose to 3.42%, up 15 basis points from February.

“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 April 2023 and June 2024,” observed the March report, published Friday. “This trend magnified substantially in March, with performance rapidly deteriorating.”

Nevertheless, impairments declined more than seasonal trends alone would likely have caused, noted dv01, and the company’s initial projections of a surge in new impairments in February was revised lower, from a 0.51% gain to a still-notable 0.34% increase from January.

The overall impairment rate eased 28 basis points over the month to land at 6.92%, just slightly lower than the 7.1% total impairment rate at the end of 2025. A sector-wide delinquency rate estimate of 6.8% at the end of December jumped to 7.3% in January before falling back to 6.9% in March, pushed lower by new delinquency rates sliding 33 basis points monthly to 1.1%.

Certified public accountant endorsed, profit-and-loss loans (CPA/P&L loans), followed by 12-month and 24-month bank statement loans, are an accelerating pocket of weakness relative to full-documentation and investor-purpose non-QM loans.

Impairment rates of about 11% for CPA/P&L loans compare to impairment rates of 6% or lower for full documentation. Verification of employment and debt-service coverage ratio investor loans also have impairments rates of about 6% or lower.

But impairment rates improved across all documentation types in March, said dv01, with the “largest relative improvements” observed among debt-service coverage ratio investor-purpose loans and verification of employment, full-documentation products.

Fitch Ratings, which owns dv01, said last week that non-QM borrowers will continue to be disproportionately vulnerable to economic volatility and rising prices from prolonged energy and trade disruptions linked to the Iran war.

“Asset performance for non-prime [residential mortgage-backed securities] sectors in the U.S. will deteriorate further in 2026,” the company said.