Non-agency RMBS / non-QM / investor-purpose
Deal structures
status: draft
Deal structures
Non-agency RMBS uses several financing structures depending on originator size, asset type, and capital market access. This page covers warehouse facilities, term securitization, whole loan sale, and forward commitment programs.
Warehouse facility
The standard financing structure for non-QM and DSCR originators. Warehouse lines provide short-term financing while loans are accumulated for sale or securitization.
Economics by product
| Product | Advance Rate | Pricing | Typical Size |
|---|---|---|---|
| Prime Jumbo | 93-97% | SOFR + 125-200 bps | $200M-$2B |
| Non-QM (prime) | 85-92% | SOFR + 175-275 bps | $100M-$500M |
| Non-QM (expanded) | 78-85% | SOFR + 225-350 bps | $50M-$300M |
| DSCR | 82-90% | SOFR + 175-275 bps | $100M-$500M |
| RPL | 72-82% | SOFR + 250-400 bps | $50M-$200M |
| NPL | 50-70% | SOFR + 400-600 bps | $25M-$100M |
Illustrative pricing. See pricing disclaimer.
Key terms
Revolving period: 12-24 months, typically extendable with fee and spread increase. During this period, originator can draw and repay as loans are originated and sold.
Dwell time limits: 90-180 days maximum hold period for individual loans. Loans must be sold or securitized within this window. Stale loans may trigger reduced advance rates or forced sale.
| Product | Typical Dwell Limit |
|---|---|
| Prime Jumbo | 60-90 days |
| Non-QM | 90-120 days |
| DSCR | 90-120 days |
| RPL | 120-180 days |
| NPL | 180-365 days |
Concentration limits: Protect against pool quality deterioration.
| Concentration Type | Typical Limit |
|---|---|
| Single state | 35-45% |
| Single MSA | 15-25% |
| Single loan | 1-3% of facility |
| Single property type | 25-40% |
| LTV above guideline | 10-20% |
Performance triggers: Can reduce advance rates or trigger early amortization.
| Trigger | Consequence |
|---|---|
| 60+ DPD above 3-5% | Advance rate reduction |
| EPD above 2-3% | Advance rate reduction, possible event of default |
| Repurchase rate above 2% | Review, possible default |
| Originator financial decline | Enhanced oversight, possible default |
What you negotiate hardest on
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Advance rate: Directly impacts capital efficiency. Every 5% higher advance rate means 5% less equity required.
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Dwell time: Longer is better for accumulating deal size. 90 days may be too short for smaller originators to reach securitization threshold.
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Concentration limits: Too tight and you can’t originate efficiently in your core markets. Too loose and lender loses protection.
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Mark-to-market provisions: Who decides when to re-mark, and based on what? Daily marks vs weekly vs monthly. Whose valuation model controls?
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Financial covenants: Minimum net worth, liquidity, tangible net worth to warehouse debt ratio. These constrain balance sheet.
status: draft
Term securitization (non-agency RMBS)
Once you’ve accumulated $200M+ in loans, you can securitize into rated bonds. This provides:
- Long-term, non-recourse financing
- Match-funded duration
- Lower blended cost than warehouse
- Relationship building with institutional investors
Market overview
Deal sizes: $200M-$1.5B typical. Shelf issuers (Verus, Angel Oak, NewRez) do multiple deals per year.
Rating agencies: S&P, Moody’s, Fitch, KBRA, DBRS. Two ratings typically required for broad investor distribution. KBRA and DBRS have grown share with newer issuers.
Format: 144A private placement is standard. Registered public deals are rare for non-QM due to disclosure requirements.
Major non-QM RMBS issuers
| Issuer | Shelf Name | Primary Products | Annual Volume |
|---|---|---|---|
| Angel Oak | AOMT | Non-QM (bank statement, DSCR) | $4-8B |
| Verus | VERUS | Non-QM, RPL | $4-8B |
| Deephaven | DRMT | Non-QM (bank statement, foreign national) | $2-4B |
| NewRez/PIMCO | HAUS | Non-QM, prime jumbo, RPL | $6-10B |
| Redwood | SEMT | Prime jumbo, non-QM | $3-6B |
| Invictus | MFRA | Non-QM, DSCR | $2-4B |
Typical capital structure
| Tranche | Rating | Size (% of deal) | Spread (to SOFR) |
|---|---|---|---|
| A-1 | AAA | 65-75% | +125-175 bps |
| A-2 | AA | 8-12% | +150-225 bps |
| M-1 | A | 5-8% | +200-300 bps |
| M-2 | BBB | 3-5% | +300-450 bps |
| B-1 | BB | 2-4% | +450-650 bps |
| B-2 | B | 1-3% | +600-900 bps |
| Residual | NR | 3-8% | Equity return |
Illustrative pricing. See pricing disclaimer.
What you need to execute a term deal
| Requirement | Details |
|---|---|
| Static pool data | 3+ years of performance by vintage |
| Audited financials | Last 2-3 years |
| Warehouse relationships | Establishes track record |
| Rating agency engagement | Pre-sale process takes 4-8 weeks |
| Legal documentation | PSA, offering documents |
| Underwriter relationship | Lead arranger, syndication |
Credit enhancement structures
Subordination: Senior tranches protected by junior tranches absorbing losses first.
| Product Type | AAA Subordination | Total Enhancement |
|---|---|---|
| Prime Jumbo | 5-10% | 6-12% |
| Non-QM (prime) | 12-18% | 14-20% |
| Non-QM (expanded) | 18-25% | 20-28% |
| DSCR | 10-16% | 12-18% |
| RPL | 20-28% | 22-32% |
Overcollateralization (OC): Extra collateral pledged beyond bond principal. Typically 0.5-3% of deal.
Excess spread: Difference between weighted average coupon on collateral and bonds. Usually 100-300 bps. First line of defense against losses.
Triggers and performance tests
| Trigger Type | Mechanism | Consequence |
|---|---|---|
| Delinquency | 60+ DPD exceeds 4-8% | Sequential pay |
| Cumulative loss | CNL exceeds schedule | Cash trapping |
| Step-down test | Subordination falls below required | Sequential pay |
| OC test | OC falls below target | Excess spread to OC |
status: draft
Whole loan sale
Selling loans directly to aggregators, REITs, insurance companies, or other investors without securitization.
Flow programs
Ongoing commitment to purchase loans meeting specified criteria.
| Feature | Typical Terms |
|---|---|
| Volume commitment | $50M-$500M per year |
| Pricing | Par minus 25-150 bps |
| Delivery window | 30-60 days |
| Eligibility | Detailed product guidelines |
| Reps and warranties | Life of loan, with sunset provisions |
Advantages:
- Simpler than securitization
- No minimum pool size
- Predictable execution
- Less infrastructure required
Disadvantages:
- Less favorable execution than securitization at scale
- Buyer controls pricing
- Rep and warranty exposure
Bulk trades
One-time sale of accumulated portfolio.
| Phase | Timeline | Activities |
|---|---|---|
| Preparation | 2-4 weeks | Data tape, documentation |
| Marketing | 1-2 weeks | Distribute to bidders |
| Diligence | 2-4 weeks | Buyer review |
| Bid submission | 1 week | Multiple rounds common |
| Closing | 2-4 weeks | Transfer, funding |
When bulk trades make sense:
- Exiting a product line
- Portfolio cleanup (scratch-and-dent)
- Opportunistic liquidity
- RPL/NPL disposition
Major whole loan buyers
| Buyer Type | Examples | Products |
|---|---|---|
| Aggregators | Pennymac, Two Harbors, AGNC | Prime jumbo, non-QM |
| Insurance platforms | Metropolitan, Prudential | Prime jumbo |
| Credit funds | Oaktree, Cerberus, Angelo Gordon | RPL, NPL |
| Mortgage REITs | MFA, Invesco | Non-QM, DSCR |
| Specialty servicers | Carrington, PHH | RPL, NPL |
status: draft
Forward commitment / TBA-style programs
For prime jumbo, some aggregators offer forward commitment programs similar to agency TBA.
How forward commitment works
- Lock at origination: Originator locks rate with aggregator before closing with borrower
- Pair-off risk: If loan doesn’t close, originator may owe pair-off fee
- Delivery window: 30-90 days to deliver loan
- Mandatory vs best-efforts: Mandatory commitment = higher pair-off risk, better pricing
Where forward commitment exists
| Product | Forward Availability | Notes |
|---|---|---|
| Prime jumbo | Common | Similar to agency process |
| Non-QM | Limited | Credit heterogeneity makes pricing difficult |
| DSCR | Limited | Some aggregators offer |
| RPL/NPL | None | Spot pricing only |
Forward pricing
| Component | Typical Range |
|---|---|
| Base price | Par to 100.50 |
| Rate lock fee | 15-30 bps |
| Extension fee | 5-15 bps per 15 days |
| Pair-off fee | 50-200 bps |
status: draft
Structural features across products
Ability-to-repay (ATR) considerations
Non-QM lacks the Qualified Mortgage safe harbor, creating litigation risk.
Structural mitigants:
- Higher yields (litigation risk premium)
- Stricter rep and warranties
- Detailed documentation retention
- Originator indemnification
Representation and warranty framework
| Rep Type | Pre-Crisis | Post-Crisis Standard |
|---|---|---|
| Duration | 24-36 month sunset | Life of loan |
| Scope | Limited | Comprehensive |
| Enforcement | Weak | Strong |
| Insurance | Rare | Available |
Key rep categories:
- Compliance (TILA, RESPA, state law)
- Origination (per stated guidelines)
- Documentation (complete, accurate)
- Title (valid first lien)
- Fraud (no known fraud)
Rep and warranty insurance: Available from specialty insurers. Premium: 10-25 bps of principal. Covers loss from rep breaches.
Prepayment penalties
| Structure | Common In | Duration |
|---|---|---|
| 3-2-1 stepdown | DSCR, non-QM | 3 years |
| 5-4-3-2-1 stepdown | DSCR | 5 years |
| 5-year hard | DSCR (aggressive) | 5 years at 5% |
| None | Prime jumbo | N/A |
Prepayment penalties affect CPR modeling and investor yield expectations.
status: draft
Related topics
- Non-QM lending — documentation types and programs
- DSCR investor loans — investor-purpose loan specifics
- Key participants — warehouse providers and underwriters
- Diligence guide — loan file and compliance review