Supply Issues Holding Back Nonprime Mortgages

According to a recent article in National Mortgage News, despite the emergence of a handful of new issuers in the PLS market and the implementation of key regulation paving the way for its comeback, the subprime securitization market remains stagnant due to supply issues. According to Grant Bailey, head of US RMBS at Fitch Ratings, “The seasoned nonprime market is very active… I think the constraint on the nonprime market hasn’t been investor interest as much as it’s been supply.” Bailey notes that investors seem less interested in nonprime than investors in some cases. As he tells National Mortgage News, "I think the banks aren't interested in making nonprime loans and the nonbanks are often dependent on selling the loans or securitizing them."

According to Equifax data, the year-to-date new nonprime loan count through October 2015 was up 28 percent, whereas the new loan count in the overall first-lien mortgage market was up 34.7 percent through October of last year. As National Mortgage News reports, “The subprime first-lien balance at origination in the first nine months of 2015 was up 6.29 percent at $154,835 on average, while overall first liens increased during the same period by just 2.21 percent, albeit with a higher average balance of $222,698. So by dollar volume, subprime share of the market is a little lower than by loan count and closer to 4 percent than 5 percent.”

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