The impairment rate of non-qualified mortgage (non-QM) loans rose to nearly 7.4% in February, underpinning what a recent report called “rapidly deteriorating” sector performance.

That reflects an increase from about 7.1% at the end of 2025, according to dv01, a data analytics firm owned by Fitch Solutions. It also reflects the “largest monthly impairment increase on record” outside of the COVID-19 pandemic, the company said.

Impairment rates capture the portion of non-QM loans that are delinquent or otherwise under modification within a securitized loan pool, with non-QM referring to mortgages that fall outside the conventional parameters of Fannie Mae, Freddie Mac or government-backed loans.

Suggesting that the sector “may be poised for further decline” in 2026, dv01’s non-QM performance report for February signaled where additional softness could arise this year, considering collateral attributes like credit scores, debt-to-income (DTI) ratios and loan-to-value (LTV) ratios.

Impairment rates for borrowers with credit scores below 660 were around 22%, while impairment rates among non-QM borrowers with credit scores between 660 and 700 were slightly under 15%. Borrowers with credit scores of 741 or higher, which represent roughly 54% of the loans dv01 analyzed, had impairment rates under 5%.

On a monthly basis, only non-QM borrowers with credit scores above 780 did not post worse impairment rates in February than in January, “with the 700-740 range showing the largest relative increase,” the report read.

Impairments increased in February across all DTI ranges, with the worst impairment rates of about 8.5% for loans in the 10% to 25% range of DTIs. Loans with unreported DTIs had impairment rates slightly above 7.5%. Curiously, borrowers with DTIs either below 10% or above 43% had the lowest impairment rates, at around 5.5% and 6%, respectively.

LTVs were a “less significant” differentiator in monthly impairment rate increases, according to the report, because all ranges saw higher levels.

Nevertheless, the impairment rate “continues to widen” versus all other ranges on non-QM loans with LTVs above 80% — representing borrowers with the least amount of equity in their properties — marking a clear performance divide across the sector.

Loans with LTVs above 80% (about 9% of the loans dv01 analyzed) ended February with an impairment rate approaching 12.5%, while loans with LTVs between 65% and 80% (about two-thirds of loans analyzed) had impairment rates of around 7.5%, near sector average. Under 60% LTV loans had impairment rates under 5%.

By document type, low-documentation loans continue to observe the worst performance, having “widened materially over the past 18 months,” observed dv01.

At around 11%, impairments rates for certified public accountant-endorsed, profit-and-loss loans (CPA/P&L loans) are an accelerating pocket of weakness, along with 12-month and 24-month bank statement loans. Full documentation, verification of employment and debt-service coverage ratio investor loans have impairments rates of about 6% or lower.

“In February 2024, impairment differences between [documentation] types were barely above their narrowest levels of 2021 and 2022,” noted dv01. The report added that non-full documentation type impairments are 250-plus basis points above other documentation types.

For the report, dv01 reviewed Fitch-rated paper issued since 2018, consisting of more than 75,000 active loans with a total current balance over $27 billion. The loans have a weighted-average credit score of 744, LTV ratio of 67.4%, note rate of 5%, debt-to-income ratio of 31.8% and balance of about $401,000.

In related coverage, Fitch separately reported that the sector-wide 30-day delinquency rate ended February at 7.26%, up from the low-6% range one year ago. The serious delinquency rate increased from 2.9% in November to 3.61% through the end of February.