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Asset Classes

Non-agency RMBS / non-QM / investor-purpose

Non-agency RMBS / non-QM / investor-purpose

Does your product fit here?

Non-agency residential mortgage-backed securities cover everything in the residential mortgage market that doesn’t qualify for Fannie, Freddie, or Ginnie guarantees. This includes loans that fail to meet agency requirements due to loan size (jumbo), documentation type (non-QM), borrower income source (self-employed, investor), or credit history (scratch-and-dent, re-performing, non-performing).

The common thread: you’re financing residential property, but the loan doesn’t fit the agency box. Your capital providers are taking credit risk on the underlying mortgages without a government guarantee.

Product categories

Non-QM loans are mortgages that don’t meet the Consumer Financial Protection Bureau’s Qualified Mortgage definition. These loans lack the ATR safe harbor, which means higher litigation risk for originators but also higher yields. Products include bank statement loans, asset depletion, foreign national, and interest-only. See non-QM lending for documentation types, underwriting criteria, and performance benchmarks.

Investor-purpose / DSCR loans are loans to investors acquiring residential property for rental income. Underwritten primarily on property cash flow rather than borrower personal income. The borrower’s DTI is secondary; the property’s DSCR is primary. See DSCR investor loans for calculation methodology and lender thresholds.

Prime jumbo are high-balance loans exceeding conforming limits ($766,550 in 2024 for most markets, higher in high-cost areas) with prime borrower profiles. These would be agency-eligible if not for the loan amount. See prime jumbo for enhancement levels and execution options.

Re-performing loans (RPL) are loans with historical payment problems that have since been cured or modified. See re-performing loans for seasoning requirements and re-default benchmarks.

Non-performing loans (NPL) are loans where the borrower has stopped paying and is typically 90+ days delinquent. Workout economics vary dramatically by state. See non-performing loans for resolution strategies and timeline analysis.

What does NOT fit here

  • Agency-eligible loans: If your loan can go to Fannie, Freddie, or Ginnie, that’s where it should go (Agency RMBS). The execution is cheaper.
  • Bridge / fix-and-flip: Short-term loans (6-24 months) for acquisition and renovation with planned sale or refinance. See Bridge / Fix-and-Flip.
  • Single-family rental (SFR) portfolios: Institutional ownership of 5+ rental properties under common ownership. See Single-Family Rental.
  • Home equity / HELOCs: Second lien products. See Home Equity and HELOCs.

Edge cases

Second liens bundled with first lien non-QM: If you’re originating a combined first and second where the first is non-QM, the package stays in this category. Standalone seconds go to Home Equity and HELOCs.

Mixed-use properties: If the property is residential with a small commercial component (home office, ground-floor retail), classification depends on income mix. Greater than 50% residential income keeps it in residential.

Short-term rental / Airbnb: Technically DSCR, but many lenders haircut projected income by 20-30% due to volatility. Some exclude STR entirely. Know your capital provider’s treatment before originating.

How lenders will classify you

Product TypeTypical LTVAdvance Rate (Warehouse)Warehouse Pricing
Prime Jumbo (full doc)80%92-97%SOFR + 125-200 bps
Non-QM Bank Statement75-80%80-90%SOFR + 175-275 bps
Non-QM Asset Depletion70-75%78-88%SOFR + 200-300 bps
Non-QM Foreign National65-70%75-85%SOFR + 250-350 bps
DSCR / Investor Purpose75-80%80-90%SOFR + 175-275 bps
Re-Performing (RPL)N/A70-82%SOFR + 250-400 bps
Non-Performing (NPL)N/A50-70%SOFR + 400-600 bps

Illustrative pricing. See pricing disclaimer.

Market benchmarks

Non-QM performance benchmarks

MetricBank StatementDSCRForeign NationalI/O (Prime)
CDR (annualized)2.0-4.0%1.5-3.5%2.5-5.0%1.0-2.5%
60+ DPD3.0-6.0%2.5-5.0%4.0-7.0%2.0-4.0%
CPR (annualized)15-30%18-35%12-25%20-40%
Loss Severity20-30%20-30%25-35%18-28%
CNL (life of pool)2.5-5.0%2.0-4.0%3.5-6.0%1.5-3.5%

What drives these numbers

Non-agency RMBS benefits from real estate collateral. Unlike unsecured consumer loans with 90%+ severity, you’re recovering 65-80% of the loan balance through foreclosure and sale. This makes the product economics very different from consumer ABS.

However, real estate collateral means you’re exposed to property value volatility and housing market cycles. The 2008 crisis demonstrated that severity can spike to 40-60% in a housing downturn when home prices decline and foreclosure timelines extend.

What good performance looks like

For Non-QM / DSCR:

  • 60+ DPD below 4% for portfolios seasoned 12+ months
  • CDR tracking below 3% annualized
  • No vintage deterioration (newer originations should perform as well or better than older)
  • Loss severity below 25%

For RPL:

  • Re-default rate below 12% at 12 months post-acquisition
  • Modification success rate above 60%
  • Advancing below 18 months (loans aren’t sitting in foreclosure forever)

For NPL:

  • Resolution within projected timeline (+/- 20%)
  • Recovery within 5% of bid assumptions
  • Net margin on workout above 15%

Red flag performance benchmarks

  • 60+ DPD exceeding 6% for any vintage at 12 months: Early onset delinquency in real estate loans is a warning sign
  • CDR accelerating after month 18: Losses should plateau, not accelerate
  • Loss severity above 35%: Either your LTVs are too high or property values are declining
  • EPD (early payment default) above 3%: Fraud or severe underwriting defects
  • Repurchase rate above 2%: Quality control failures

Structures overview

Warehouse facility

The standard financing structure for non-QM and DSCR originators. 12-24 month revolving facilities with 90-180 day dwell time limits. Loans must be sold or securitized within this window.

Key terms to negotiate:

  1. Advance rate (directly impacts your capital efficiency)
  2. Dwell time (longer is better for accumulating deal size)
  3. Concentration limits (too tight and you can’t originate efficiently)
  4. Mark-to-market provisions (who decides when to re-mark, and based on what?)

See deal structures for warehouse economics by product type and term securitization capital structures.

Term securitization (non-agency RMBS)

Once you’ve accumulated $200M+ in loans, you can securitize into rated bonds. Deal sizes range $200M-$1.5B, with shelf issuers doing multiple deals per year. Two ratings typically required for broad investor distribution.

What you need to execute a term deal:

  • 3+ years of static pool performance data
  • Audited financials
  • Established warehouse relationship(s)
  • Rating agency engagement (pre-sale process takes 4-8 weeks)

Whole loan sale

Selling loans directly to aggregators, REITs, insurance companies, or other investors without securitization. Flow programs offer ongoing commitments at par minus 50-200 bps. Bulk trades work for RPL, NPL, or originators exiting a product line.

What investors focus on

Property valuation and LTV

LTV is the single most important variable in residential mortgage credit. Lower LTV means more borrower equity, more cushion before the loan is underwater, and better recovery in foreclosure.

What capital providers look at:

  • Appraisal recency: Appraisals older than 90-120 days are stale
  • Appraisal quality: Full interior appraisals by licensed appraisers are the gold standard
  • AVM reconciliation: If the appraisal is more than 10% above the AVM, expect questions
  • Geographic concentration: Single state above 40% draws material pricing impact

Originator quality

Quality control process, guideline consistency, and rep and warranty track record are critical. Has the credit box expanded recently? Rising approval rates often precede rising defaults.

See diligence guide for loan file review procedures, appraisal review, compliance review, and originator operational diligence.

Active participants

The non-agency RMBS market has distinct participants across origination, aggregation, warehouse lending, securitization, and investment.

See key participants for major originators, warehouse providers, term ABS underwriters, and active investors by strategy.

Deep dives

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