Non-QM Mortgage Delinquencies Spike To 4%, Fitch Sounds Alarm

Delinquencies in Non-QM mortgages have witnessed an uptick, reaching a 4% rate at the close of September, a significant jump from the 2.9% recorded at the end of 2022, Fitch Ratings reported.

However, there's a silver lining amidst this cloudy scenario. Debt service coverage ratio (DSCR) mortgages tied to investment properties are outshining other Non-QM types. The current landscape of housing and rental has played a pivotal role in this resilience. With rental prices soaring, mortgage payments have found firm ground, ensuring stability in this segment.

But there's more at play in the broader mortgage landscape. Originators are doubling down on the production of affordability products within the non-prime domain. With mortgage rates on the ascent and home prices reaching dizzying heights, the allure of the traditional dream home is fading for many. Consequently, affordability products are gaining traction, especially among prospective homeowners who find themselves sidelined in the face of higher mortgage rates.

Fitch estimates national home prices are overvalued by 7.6%, but it is not anticipating near-term declines due to the housing supply shortage.

However, this shift towards affordability products isn't devoid of repercussions. Fitch Ratings forecasts that the popularity of these products might reflect in the compromised credit quality and performance of the 2023 and 2024 vintages. The industry will be keenly observing these trends as they unfold in the coming months.