Non-qualifying mortgage (non-QM) volumes “reached record supply metrics” in the third quarter of 2025, with growth in the sector accelerating as conventional mortgage originations last quarter remained at similar levels as a year ago.
Newly published figures from global ratings agency DBRS Morningstar suggest that declining conventional benchmark rates drove an uptick in refinances in the third quarter, causing prepayment speeds to rise by 60 basis points to 14.1% across non-QM sectors.
The third quarter closed with more than $20 billion in issuance, the largest volume quarter in non-QM residential mortgage-backed securities (RMBS) in the ratings firm’s records. The $8.5 billion of non-QM RMBS issued in September set a monthly volume record, DBRS says.
Issuers do not appear to be taking any more or less risk than usual to achieve that growth, DBRS reports, with the collateral pools showing “typical risk characteristics” across respective issuers.
Rentership rates have ticked up in recent years as affordable single-family housing shortages have limited access to homebuying for younger first-time homebuyers, reducing mobility across renting and owning thresholds.
Investor-buyers, whose business-purpose mortgages for financing rental property purchases fall within non-QM rating buckets, have sustained a purchase share higher than that seen during the pandemic, claiming roughly 3 in 10 home sales through the first six months of 2025.
Weighted average credit scores on non-QM collateral pools were in the mid-700s last quarter, while loan-to-value ratios hovered around 70% and debt-to-income ratios averaged in the low 30% range.
Gross weighted average coupons (GWACs) for third-quarter non-QM deals inched lower compared to the second quarter, “hovering firmly” at the mid-7% level, about 40 to 50 basis points lower than average 2024 GWAC deals in the low-8% range.
Minimal defaults allowed accumulated net losses to remain low across the non-QM sector, with collateral supported by “steady home prices and a reasonable economic backdrop,” the report reads.
Steady home price growth, even if decelerating, allows for steady improvements to loan-to-value ratios across all RMBS segments and vintages.
With pockets of strong appreciation emerging regionally, national home price growth is projected to sustain a softening trend for several years, effectively capped by limited homebuyer affordability.
Sector-wide delinquency rates that are consistently multiples higher than their conventional counterparts underscore the fundamentally higher credit risk in non-QM, DBRS says.
Deals from 2023 and 2024, specifically, have been observed diverging into higher levels of 30-day and 60-day delinquencies. The non-QM sector’s weighted average delinquency rate was 5.65% as of the end of September.
