KBRA Releases Research – RMBS Trend Watch: Deconstructing Non-Prime Risk Layers

KBRA provides an update on key RMBS market and performance themes, including issuance volume trends and forecasts for the remainder of the year, as well as collateral performance trends and non-prime risk layering.

Key Takeaways

• RMBS 2.0 2025 Year-to-Date (YTD) and Full-Year (FY) Issuance: YTD 2025 issuance has already reached approximately $11 billion, with numerous deals still in the pipeline for February. As a result, KBRA has raised its Q1 2025 forecast to $30 billion, reflecting a 23% year-over-year (YoY) increase. The strong start to the year has also led us to revise our FY 2025 projection upward by $15 billion to $122 billion. Issuance is expected to be driven by non-prime, which has benefited from some of the most favorable pricing spreads in years, and HELOC/CES transactions.
• RMBS 2.0 Spreads: Issuance spreads have continued their tightening trend across the board, reaching some of the lowest levels in recent years. For example, for non-prime transactions priced in Q1 2025 to date, spreads ranged between 115 basis points (bps) and 135 bps, approaching levels last seen in late 2021 and early 2022.
• RMBS 2.0 Credit Performance: RMBS 2.0 delinquency rates continued to rise across most subsectors and delinquency stages on a YoY basis. YTD, KBRA’s prime, non-prime, low LTV CRT (loan-to-value credit risk transfer), and high LTV CRT indices recorded increases in delinquency rates. Non-prime late-stage delinquencies, for example, increased 104 bps YoY, reaching 3.4% as of January 2025. These increases remain measured but show a clear upward trend. KBRA’s recently released HELOC/CES index showed YoY improvement in mid- and late-stage delinquencies. However, the HELOC/CES index is new with fewer observations. Prepayments declined in January and are expected to remain muted for the remainder of 2025.
• RMBS 2.0 Non-Prime Risk Layering Analysis: As non-prime delinquencies continue to rise more noticeably than other RMBS products, risk layering appears to have in part contributed to this trend. KBRA’s analysis shows that in more recent vintages, the share of loans with three or more specific risk attributes has increased to 35%, up from 28% in 2019 and less than 20% in 2018 and earlier vintages. However, losses remain near zero, supported by meaningful down payment requirements that have traditionally been a key feature of non-prime lending.
• Surveillance Activity: As of February 14, 2025, KBRA conducted surveillance reviews of 58 transactions that resulted in 1,639 affirmations, 36 upgrades, and no downgrades. We expect 2025 surveillance action to remain stable with minimal downward rating migration.

Click here to view the report.

Related Publications

• Maryland Licensing Rule Update
• 2025 RMBS Sector Outlook: Growth on the Horizon
• KBRA Launches U.S. HELOC/CES Credit Index
• U.S. RMBS Credit Indices: January 2025
• KBRA-Rated RMBS Exposure to Los Angeles Wildfires

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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