US subprime mortgage bonds are making a quiet comeback

Issuance doubled in the first quarter

TRD New York /
March 29, 2018 05:05 PM

Homes in South Florida (Credit: Getty Images)

Are U.S. subprime mortgage securities making a comeback? The issuance of bonds backed by home loans too risky to qualify for Fannie Mae or Freddie Mac’s quasi-insurance almost doubled year-over-year in the first quarter of 2018, to $1.3 billion from $666 million.

Matt Nichols, who heads the North Carolina-based Deephaven Mortgage, told the Financial Times he predicts that issuance of subprime mortgage bonds will hit $10 billion this year, up from $4.1 billion last year.

“The originator appetite to produce more of it is growing,” Nichols told the publication. “It’s a question of loan officers learning about the availability of the products again and … being willing to teach realtors and borrowers that there is more credit available.”

Some observers argue that today’s subprime mortgage market isn’t as risky as it was pre-2008, citing new rules that force issuers to keep 5 percent of bonds on their books and take stock of borrowers’ financial strength.

Georgia-based Angel Oak is now marketing a $329 million package of non-prime mortgage bonds, according to the FT. Ratings agency DBRS found that about 10 percent of the loans backing the bonds were issued to people who had several delinquencies over the past year. [FT]Konrad Putzier


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