A Loss By Any Other Name: Dissecting Non-QM Modifications

The Non-QM sector has demonstrated its remarkable resilience and performance by posting minimal losses or liquidations in its securitizations.

The Fitch-dv01 Non-QM Benchmark shows only 74 loans with liquidation losses or REO status (indicating a completed foreclosure), and only 102 that experienced a terminal credit event. The average loss severity stands at just 6.7%, with 67 loans at <1 severity and only 6 loans with >20% severity. Notably, over 1,100 loans have resolved serious delinquency statuses (90+ DQ) via a payoff, and although liquidation and losses are not the focus of this research, loss severity on delinquent loans is barely above 0.

Rather, this analysis shifts attention to the ratio of modifications-to-completed liquidations and the trust’s lost income as a result of modification. This paper concludes with recommendations regarding missing documentation and disclosures that servicers and reporting entities must make available to investors and stakeholders, and outlines the ramifications of the continued obfuscation of these figures.